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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                         D.G. JEWELLERY OF CANADA, LTD.

                                    FORM 20-F


                                   (MARK ONE)

       [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                                       OR

       [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                                       OR

     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                  FOR THE TRANSITION PERIOD FROM _____ TO _____

                             COMMISSION FILE NUMBER
                                     I-14600
                                     -------

                          D.G. JEWELLERY OF CANADA LTD.
             (Exact Name of Registrant as specified in its charter)

                                     Canada
                 (Jurisdiction of incorporation or organization)

                               1001 Petrolia Road
                         Toronto, Ontario, Canada M3J 2X7
                    (Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Class                                            Name of Exchange
--------------                                            ----------------
Common Stock, no par value                                Boston Stock Exchange
Redeemable Common Stock Purchase Warrants                 Boston Stock Exchange


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Securities registered or to be registered pursuant to Section 12(g) of the Act:

Common Stock, no par value
Redeemable Common Stock Purchase Warrants

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:

Common Stock, no par value
Redeemable Common Stock Purchase Warrants

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report:

5,165,000 shares of Common Stock
1,265,000 Redeemable Common Stock Purchase Warrants


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

[X] Yes [  ] No

Indicate by check mark which financial statement item the registrant has elected
to follow:

[X] Item 17 [ ] Item 18

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                               EXCHANGE RATE DATA

         The Company maintains its books of account in Canadian dollars, but has
provided the financial data in this Prospectus in United States dollars with its
audit conducted in accordance with generally accepted auditing standards in the
United States of America. All references to dollar amounts in this Prospectus
are in United States dollars.

         The following table sets forth, for the periods indicated, certain
exchange rates based on the noon buying rate in New York City for cable
transfers in Canadian dollars. Such rates are the number of United States
dollars per one Canadian dollar and are the inverse of rates quoted by the
Federal Reserve Bank of New York for Canadian dollars per US$1.00. The average
exchange rate is based on the average of the exchange rates on the last day of
each month during such periods. On June 19, 1998, the exchange rate was US$1.00
per Cdn$1.47.

    Year Ended December 31,               1994     1995     1996     1997
    -----------------------               ----     ----     ----     ----

RATE AT END OF PERIOD                   $0.7143  $0.7353  $0.7299 $ 0.6991
AVERAGE RATE DURING PERIOD               0.7299   0.7299   0.7353   0.7223
HIGH                                     0.7092   0.7009   0.7212   0.6945
LOW                                      0.7642   0.7533   0.7526   0.7493


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                                     PART I

ITEM 1 - DESCRIPTION OF BUSINESS GENERAL

D.G. Jewellery of Canada, Ltd. (the "Company") is primarily engaged in the
design, manufacture, merchandising and distribution of stone-set jewelry for
department stores, mass merchants, catalogue showrooms, television shopping
networks and other high volume retailers and major discounters. The Company is
also seeking to take advantage of non-traditional wholesale distribution outlets
such as Internet wholesale advertising services, liquidation operations, and
consumer product rental companies.

The Company believes it has established itself as a low-cost, high-volume and
quality manufacturer in the value priced jewelry market. Its primary competitive
advantage, particularly for the DG Division, is its innovative manufacturing
methods (the "D.G. Manufacturing Process") which allow for substantially reduced
costs per unit, provide substantial capacity and better quality, and require
minimal skilled labor. See "Business--Manufacturing." The Company's
merchandising strategy also involves the design of products that it believes
will continually appeal to the mass market. The Company also assists its
customers in creatively merchandising its jewelry to encourage impulse
purchases.

The Company's operations are divided into three divisions. The "DG Division"
manufacturers and distributes value priced stone-set rings and other jewelry
products. The Company has operated the DG Division in Canada for 29 years. The
"Aviv" division manufactures and assembles bridal jewelry. The Company acquired
Aviv in February 1998. The "Diamonair" division assembles and distributes
jewelry, primarily set with synthetic stones. The Company acquired Diamonair in
November 1997.

Growth has been achieved by providing its customers with quality and service and
in recent years through the D.G. Manufacturing Process, which enables the
Company to provide its customers with value priced stone-set mass appeal jewelry
at lower cost than many of its competitors. The Company maintains long-standing
relationships with Canadian customers such as Reed's Jewellers, The Twain Group
and The Shopping Channel. In the last two years, the Company has also focused on
the much larger American market. The DG Division established a United States
sales office in Tampa, Florida and currently sells products to customers such as
Wal-Mart, Fred Meyer Inc., Value Vision International Inc., Suarez Corporation,
which is a direct mail order company, and others, including Zales Corporation
("Zales"), the largest jewelry retailer in the United States. The Company has
also utilized strategic acquisitions to increase its presence in the United
States. Diamonair's customers include Finlay Fine Jewelry Corp. ("Finlay"),
which operates leased fine jewelry departments in department stores for
retailers such as May Department Stores and Federated Department Stores. Aviv
sells to Zales and Finlay, as well as many independent jewelers in the United
States. In 1997, approximately 63% of the Company's sales were in the United
States, as compared to 17% in 1995.

Business Strategy

The Company believes that its business strategy will enable it to become a
leader in the value priced, stone-set jewelry market. The Company believes that
its business strategy will allow it to leverage the expertise and customer base
it has established in the Canadian market to increase sales in the much larger
markets of the United States. The Company also believes that it can increase
sales of its other products, including bridal jewelry, by integrating the
Company's divisions. The Company's primary business

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strategies are as follows:

Capitalize on the DG manufacturing processes
The DG Manufacturing Process allows the Company to produce mass quantities of
stone-set, value priced jewelry. The Company is able to offer quality products
to its customers at prices that are competitive with or lower than its
competitors offering similar goods while maintaining adequate profit margins.
Management believes that the DG Manufacturing Process produces goods that are
superior to comparably priced goods produced by competitors. The Company
believes that these advantages will allow for continued growth in market share
of value priced jewelry.

Integrate the Aviv and Diamonair Acquisitions
The Company completed both the Aviv and Diamonair acquisitions in the last eight
months. Although the DG Division manufactures products for Diamonair, the three
divisions' operations have not been fully integrated. The Company is reviewing
the Aviv and Diamonair product lines to determine how to manufacture more of
their product lines with the DG manufacturing process. The Company is also
looking into the feasibility of utilizing each division's distributions lines
and customers to promote and "cross-sell" the products of the other divisions.
The Company believes that this cross-promotion will increase the rate of
penetration of DG's products into the US markets.

Extend Customer Base and Utilize Non-traditional Distribution Lines
While the Company has developed a broad customer base, the Company targets its
marketing efforts towards large retailers, such as department stores, mass
merchandisers, television shopping networks, catalogue showrooms and other
discount stores, whose overall share of retail jewelry sales is expected to
increase. These customers typically require a high level of service, and the
Company seeks to build long-term relationships by making it convenient and
cost-effective for these customers to rely on the Company for essential services
such as product design, inventory control and delivery.

The Company is also seeking to sell its products through non-traditional
wholesale distribution outlets such as television shopping networks, internet
wholesale advertising services, liquidation operations and consumer product
rental companies. Management believes that the Company's products are ideal for
many of these non-traditional outlets, which usually feature moderate and lower
priced products.

Maintain a Broad Product Mix
The Company maintains a broad product mix so that it can meet the varying needs
of its customers, who range from discount stores such as Wal-Mart, Inc. to
department stores such as Sak's Fifth Avenue. This also enables the Company to
supply each customer with a number of different styles of each product, which
jewelry retailers generally like to have in stock. The DG Division, Aviv and
Diamonair currently offer the Company's customers approximately 5,000, 4,000 and
600 styles of rings, respectively. The Company also offers its customers over
800 other products, primarily pendants and earrings.

The Company attempts to provide its customers with rings and other jewelry
products that incorporate traditional styles and designs. While the Company
regularly updates its product lines and offers new products, it seeks to avoid
designs incorporating fashion trends that are expected to have short life
cycles. This approach enables the Company and its customers to avoid
accumulating obsolete inventory. Additionally, the Company can create specially
designed products in response to requests or pictures submitted by customers.
This variety and flexibility allows the Company to meet a wide variety of its
customers' jewelry needs.

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Acquisitions and Joint Ventures
The Company has utilized the Aviv and Diamonair acquisitions to increase the
rate of the Company's penetration into the U.S. jewelry markets. Each
acquisition also broadened the Company's product line and increased the number
of customers that the Company works with, creating cross-selling opportunities.
Although it has no current plans or potential targets, the Company may make
additional acquisitions of manufacturers or distributors of complementary
jewelry products in the future if such potential targets offer strategic
opportunities for the Company as a whole.

The Company also intends to use strategic partnerships and joint ventures to
create additional revenue for the Company and to create opportunities for the
sale of the Company's products. Currently, the Company is in negotiations with
Time Group USA, Inc. ("Time") to acquire 50.1% of Time. Time primarily will
provide repair and engraving services for watches and other jewelry. See "Time
Group, Inc." The Company is also in negotiation with Silverman Jeweler's
Consultants to establish an inventory liquidation services company in Canada.
See "Silverman Retail Solutions, Inc."

Marketing

The Company maintains sales offices at its Toronto headquarters, at the Aviv
manufacturing and office facility in Houston, Texas, at the Diamonair offices in
Cedar Knolls, New Jersey and in Tampa, Florida. The Company's sales staff
promotes the Company's products to a wide range of customers via existing
relationships, trade shows and product presentations.

The Company seeks to provide value priced, quality products. Price and quality
are of particular importance in the jewelry market because, except at the
highest end of the market, advertising and brand name recognition are minimal.
The Company believes that the D.G. Manufacturing Process allows it to provide
its customers the DG Division products at prices that are competitive with or
lower than its competitors' products. Similarly, the incorporation of DG
Division products and manufacturing into Diamonair has allowed for competitive
pricing of that division's products. The Aviv products, which usually are made
of more expensive metals and contain more expensive stones, are also
competitively priced when compared with goods of similar quality. Marketing of
Aviv products are aided by Aviv's specialization in bridal jewelry, which allows
Aviv's sales people to focus their marketing efforts on certain market segments.

Often, retail stores are provided pre-arranged presentation trays. These trays
usually contain the Company's most popular styles in common sizes. The Company
believes that these trays make it convenient and cost effective for retail
stores to display and promote the Company's products. The Company believes that
retail store operators who utilize these pre-arranged presentation displays,
which may include point-of-purchase displays, will elicit impulse purchases of
the Company's products because the styles are familiar to customers and are
priced at attractive levels. Aviv also utilizes independent sales
representatives, who promote Aviv's products to smaller retail outlets.

Management emphasizes maintaining and building upon the Company's relationships
with existing customers. The Company provides specialized support services to
its customers, including bar-coding and drop shipping to individual customer
locations as well as central distribution centers. Further, in order to fill
customer orders more quickly and effectively the Company has an Electronic Data
Interchange ("EDI") program pursuant to which the Company electronically
receives purchase orders from participating

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customers and electronically transmits to the customers order acknowledgments,
invoices and advance shipping notices. The EDI link and other support options,
in management's opinion, assures an ongoing business relationship. The Company
believes these specialized services, which are particularly important in
marketing to large retailers, enhance the Company's ability to attract and
retain customers.

Although the Company's sales are generally non-refundable, the Company may
accept returns of certain items in order to maintain customer goodwill and as
part of promotional programs. Returns of products are not significant and
generally are made as part of stock balancing transactions in which the returned
products are replaced with products better suited to the customer's needs. The
Company has not experienced any difficulty in reselling returned merchandise.

In 1997, the Company began listing excess inventory on an Internet wholesale
commerce website. The Company intends to continue this practice because it
provides an inexpensive method for disposing of excess inventory on favorable
terms.

Customers

The Company maintains a broad base of customers concentrated in four major
jewelry segments: (i) department stores such as Sears Roebuck, J.C. Penney and
Saks Fifth Avenue (the Company's products are also sold in certain Federated
Department Stores and May Department Stores through, Finlay Fine Jewelry Corp.,
an operator of jewelry boutiques within other department stores); (ii) specialty
markets, such as The Shopping Channel (Canada) and ValueVision; (iii) jewelry
chain stores such as Zales, Gordons, Friedmans and others and (iv) mass
merchandisers such as Wal-Mart. The Company generally does not sell pursuant to
any formal or long-term contracts.

For the year ended December 31, 1997, three major customers accounted for 42% of
sales. Finlay accounted for 19% of sales, Silverman Jeweler Consultants, Inc.
accounted for 14% of sales and WalMart accounted for 9% sales. For the year
ended December 31, 1996, the Company's two largest customers were Wal-Mart (21%
of sales) and Zellers, Inc. (Canada)(11% of sales). The loss of any of the these
customers or a significant reduction in their orders would have a materially
adverse effect on the Company. Except for Zellers, the Company believes that its
relationship with its customers is good. Zellers, who had purchased rings
pursuant to a contract with the Company, has stopped purchasing products from
the Company and is in litigation with the Company. See "Item 3 - Legal
Proceedings."

Product and Design

The Company seeks to provide its customers with a broad selection of jewelry
products that incorporate traditional styles and designs. The Company seeks to
avoid designs incorporating fashion trends which are expected to have short life
cycles. This approach enables the Company and its customers to avoid
accumulating obsolete inventory. Additionally, producing a greater quantity of a
particular product results in a more efficient manufacturing process.

However, the Company regularly updates its product lines and offers new
products. The Company maintains a staff of model makers/designers who develop
new designs based on research of the market and surveying stores, catalogues and
industry publications to determine current trends. Additionally, the Company can
create specially designed products in response to requests or pictures submitted
by customers. New product design prototypes are created, and after evaluation
the final product design is

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produced. Currently, the Company is perfecting its computer aided design system
which is quicker and more accurate than design by humans.

A principal goal of the Company's design program is to maximize the perceived
value of the Company's products through design and manufacturing innovations
that enhance the appearance of the jewelry without causing corresponding
increases in product costs. This design approach assists the Company in
producing quality products reflecting general consumer tastes. The Company,
particularly the D.G. Division and Diamonair, seeks products, not as fashion
leaders or faddish styles, but of enduring styles that encourage moderately
priced impulse purchases.

Rings account for approximately 90% of the Company's sales by units sold and
dollar revenue. The D.G. Division currently offers approximately 5,000 styles of
rings. The rings are moderately priced and the average wholesale price of the
rings is approximately $150.00. The retail price of the D.G. Division's better
selling products range from $30.00 to $600.00, although some products can cost
as much as $1,000. The rings are made principally in 10 karat gold. The
Company's products contain a variety of stones classified as diamonds, precious
(e.g., rubies, sapphires, emeralds), semi-precious (e.g., garnet, topaz,
amethyst, aquamarine, opal) or synthetics (e.g., cubic zirconia, spinel). The
use of stones increases average unit sales price and results in greater margins.
Additionally, the inclusion of stones creates a greater margin flexibility to
insulate the Company from fluctuation in the value of gold. The D.G. Division
manufactures a number of rings with multiple stones because management believes
the D.G. Manufacturing Process allows the Company to produce multiple stone
items at a lower cost than the Company's competition.

Aviv offers approximately 4,000 rings, most of which are intended to be used as
wedding or engagement rings. Aviv's rings are made up of precious metals,
including 24 karat gold and platinum. The average wholesale price of the Aviv
products is $700.00. The retail price of Aviv's better selling products range
from between $500.00 and $1,500.00. Some of Aviv's diamond rings are sold for as
much as $5,000.

Diamonair offers approximately 600 rings, primarily adorned with cubic zirconia
stones. Although many of Diamonair's products are made of precious metals, the
Diamonair products are generally lower priced goods. The average wholesale price
of Diamonair's products is $100. The retail price of Diamonair's better selling
products range from $50 to $500. The Company is planning to introduce other
stones, which may include gem stones as well as other synthetic stones into the
Diamonair products.

The Company, through each of its three divisions, offers approximately 800
earrings and pendants. Many of these products are manufactured with the D.G.
Manufacturing Process, which allows the Company to produce these items at costs
which are competitive with or less than the Company's competitors. The Company
also designs earrings and pendents to match some of the Company's rings so that
the products can be sold as a set.

Manufacturing Process

The D.G. Manufacturing Process is a special process for producing a high-volume
of low-cost multi-stone rings. The D.G. Manufacturing Process provides the
Company, with a current estimated manufacturing capacity of approximately 15,000
rings per week. This process is utilized at the Toronto facility for the DG
Division product line and certain Diamonair products. The Company believes that
it has a reputation for its expertise in the setting of stones and the Toronto
facility is presently producing an average of

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approximately 1,500 to 1,800 rings per week. Management believes that its
manufacturing capabilities distinguish it from most of its competitors and
enable it to produce very competitively priced, quality and consistent products
satisfying its customers' demands for mass merchandising.

The D.G. Manufacturing Process combines modern technology, mechanization and
hand craftsmanship to produce fashionable and moderately priced jewelry. Its
manufacturing operations involve combining pure gold with other metals to
produce 10 and 14 karat gold, manufacturing cast jewelry, and finishing
operations such as cleaning, polishing, diamond-cut, engraving, plating and
other jewelry work. The Company utilizes the lost-wax/cast-in-place method of
jewelry manufacturing to produce high-quality gold rings, earrings, pendants and
bracelets. This is based on an investment casting process used in the jewelry
manufacturing industry. It entails creating wax duplicates of the items which
are encased in a plaster mold. The plaster is hardened in an oven while the heat
melts away the wax, leaving a hollow mold pre-set with stones in place. The mold
is injected with metal, in effect reverse-mounting the stones in the jewelry.
After the casting process, the jewelry undergoes a series of cleaning and
polishing stages before being labeled with the retailer's price tag and bar
codes and shipped. This process allows unskilled labor with virtually no
training to set as many as 8,000 stones per day per stone setter, at a cost of
approximately four cents per stone. This compares to the normal setting process
of a skilled setter, setting up to 150 stones per day, at a cost of up to $1.00
per stone or more. However, the percentage savings are far more significant when
the intrinsic values which make up the jewelry item are lower. This is so
because the greater the labor factor in the product's cost structure, the
greater the percentage savings when such labor factor is reduced.

Many of the D.G. Division's manufacturing personnel are paid on a piece-work
basis. Management believes this basis provides incentive to maximize
productivity while at the same time, it provides the Company accuracy in cost
accounting. The Company's strict quality control guidelines ensure that quality
is not sacrificed for productivity. The Company uses a bar-coded tracking system
for all inventory in process. When a job bag is transferred from one employee to
another, it is automatically electronically 'wanded' (UPC bar coded for number
of units, style, and other pertinent customer information) into that employee's
custody. This has the effect of assigning responsibility for the inventory. It
also causes the recipient employee to verify quality of the product prior to his
commencement of work, in effect, policing the prior person's work. If the
previous employee's work was substandard, the recipient will require that person
to take the extra time to correct the work. Otherwise, the recipient would have
to correct such product at no additional compensation and would further make the
recipient's work more difficult as well as delaying his production. Therefore,
the system is self policing.

Management believes that these significant savings will allow the Company to
produce jewelry that previously did not warrant large labor costs and
accordingly have not been produced by anyone else. Specifically, multi-stone
sterling silver products could now be mass produced to retail at prices
geared to mass merchandiser's "customers" profiles. These products could now
sell in a range from $9.99 to $49.97 retail, and project a quality and perceived
value of several times that amount. Management believes the jewelry industry has
avoided producing this type of product since the sterling silver metal value and
the synthetic stone values did not warrant too much labor costs. The Company's
lower labor costs makes it possible to produce these products profitably.

Currently, manufacturing and other operations for the Aviv product line are
accomplished at the Company's facility in Texas. The lease to this factory was
assigned to the Company in connection with the acquisition of Aviv. This four
year old facility produces an average weekly volume of 800 rings and Management
believes its current facilities have the capacity to produce approximately 4,500
rings per week.

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Diamonair primarily purchases products from the D.G. Division and other
manufacturers in a finished condition. However, Diamonair does do some assembly,
repair and packaging of its products from its facility in Cedar Knolls, New
Jersey.

The manufacturing process in the jewelry industry results in great volumes of
gold scrap. The Company has strict controls to minimize waste. Management
believes that its manufacturing processes reduce the handling of the end jewelry
product and accordingly, the quantity of jewelry scrap is greatly reduced. The
scrap in the form of chips, filings, grindings and sweepings, are recovered by
the Company and sent to refiners to recover the gold. The Company's recovery
from refiners in 1996 and 1997 were 1,065 ounces or approximately $420,000, and
1,565 ounces or approximately $545,000, respectively.

Supply

The Company purchases its gold from banks, gold refiners and commodity dealers.
Management believes this arrangement is sufficient to meet the Company's
requirements. Gold acquired for manufacture is at least .995 fine and is
combined with other metals to produce 10 or 14 karat gold. The term 'karat'
refers to the gold content of alloyed gold, measured from a maximum of 24 karats
(100% fine gold). Varying quantities of metals such as silver, copper, nickel
and zinc are combined with fine gold to produce 10 or 14 karat gold of different
colors. These alloys are in abundant supply and are readily available to the
Company. Other precious and semi-precious stones are available from many
suppliers in Canada and the United States.

The world's supply of diamonds comes primarily from De Beers Consolidated Mines,
Limited ('De Beers'), a South African company. The continued availability of
diamonds to the jewelry industry is dependent, to some degree, on a continual
supply from De Beers. While several other countries are major suppliers of
diamonds, in the event of an interruption of supply from South Africa, the
Jewelry industry, as a whole, could be adversely affected, which could impact
the supply of diamonds to the Company.

The Company does not presently engage in hedging activities with respect to
possible fluctuations in the prices of precious, semi-precious gemstones or
metals. The Company believes the risk of price fluctuations can be mitigated by
changes in the prices the Company charges its customers, which the Company has
historically done in response to such fluctuations. However, there can be no
assurance that a downward trend in the prices of stones or metals would not have
a material adverse impact on the valuation of the Company's inventories or that
an increase in prices would not make it more difficult or costly for the Company
to acquire inventory.

The Company purchases its supplies and raw materials from a variety of suppliers
and it does not believe the loss of any of the suppliers would have a material
effect on its business. Alternative sources of supply for raw materials for
production of jewelry are readily available.

The Company carefully inspects all materials sent and received from outside
suppliers, monitors the location and status of all inventory, and has strict
internal control procedures of all jewelry as it proceeds through the
manufacturing process. A complete physical inventory of gold, silver and
gemstones is taken at the Company's manufacturing and administrative facilities
on an annual basis. The Company employs an agency to provide a security staff
and has various security procedures in the hiring of personnel as well as
internal-security procedures regulating employee conduct.

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Insurance

The Company maintains primary all-risk insurance, with limits in excess of the
Company's current inventory levels, to cover thefts and damage to inventory
located on the Company's premises. The Company also maintains insurance covering
thefts and damage to Company owned inventory located off-site. The amount of
coverage available under such policies is limited and may vary by location, but
generally is in excess of the value of the gold supplied by the Company. The
Company maintains fidelity insurance which provides coverage against theft or
embezzlement by employees of the Company. Additionally, the Company maintains
director's and officer's liability insurance in the amount of $5,000,000.

Competition

The jewelry manufacturing industry is highly competitive, and the Company's
competitors include domestic and foreign jewelry manufacturers and wholesalers
and importers who may operate on a national, regional and local scale. The
primary competitive factors are price, design, quality, customer service and
established customer relationships.

The diverse distribution channels in which the Company markets its products
frequently involve different competitive factors. The ability to provide
specialized services is a particularly important competitive factor in its sales
to certain large retailers such as mass merchandisers, discount stores and
warehouse clubs. Product availability and the ability to offer consistent
product quality at competitive prices tend to be the key competitive factors to
the customer segments which the Company serves. Some of the Company's
competitors may specialize in sales to particular distribution channels and may
have relationships with customers in those distribution channels that make
competition by the Company more difficult. The Company believes that the recent
trend towards consolidation at the retail level in the jewelry industry will
increase the level of competition in the markets in which the Company competes.

In Canada, management believes it has two primary competitors, both larger than
the Company. A&A Jewelry of Scarborough, Ontario is the Canada's largest jewelry
manufacturer. It manufactures both casted ring products and stamped gold
earrings and pendants, and its sales are both in Canada and the United States.
Finecraft Industries Limited is the other major Canadian manufacturer, which
also imports from the Far East.

In the United States, the market, although highly fragmented, does contain a
number of major competitors many of whom import much of their product from the
Far East and many of whom sell higher priced items. The United States
competitors include Town & Country Fine Jewelry Group, M. Fabrikant & Sons,
Inc., Samuel Aaron Inc., Simon Golub, PAJ, Inc., Nissko Jewellery Trading, World
Pacific Products, Andel, Andin International Inc., Oroamerica, Inc., Dalow
Industries and Michael Anthony Jewelers Inc.

Patents and Trademarks

The Company has received or applied for trademarks of certain product names and
for patents on approximately 200 Aviv product designs. These trademarks and
patents are not economically material to the Company.

The Company does not have, nor does it rely, on patents to establish or protect
its market position. The

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Company has not applied for patent protection of the D.G. Manufacturing
Processes to avoid disclosing its unique application, modification and
improvements relating to certain basic processes known in the industry. Further,
the Company cannot be assured that the process which it believes is proprietary
would qualify for a patent, and if a patent would be granted, there is no
assurance as to the extent of its enforceability. There can be no assurance that
competitors will not be able to imitate the Company's manufacturing processes,
which could have a material adverse effect on the Company.

The New York Gold and Diamond Exchange.

As part of the acquisition of Aviv, the Company acquired the New York Gold and
Diamond Exchange ("NY Gold"), a retail store. NY Gold is located in a 1,500
square foot area of the Aviv facility in Houston, Texas. NY Gold sells the
products of Aviv and other manufacturers and offers the Company an excellent
opportunity to profitably dispose of excess inventory of Aviv products. The
Company intends to increase the amount of DG Division and Diamonair products
that it sells in the store.

Time Group USA, Inc.

The Company is currently in negotiations with the owners and management of Time
Group USA, Inc. ("Time") to acquire 50.1% of the issued and outstanding stock of
Time. Time is a development stage company that provides repair and engraving
services for watches and other jewelry. Currently, Time engages in limited
operations on five military bases. There can be no assurance that the Company
will successfully complete the agreement to acquire a controlling interest in
Time or that the Time operations will provide the Company with significant or
any revenue or net income.

Silverman Retail Solutions, Inc.

The Company is currently in negotiations with the owners and management of
Silverman Jeweler's Consultants, Inc. to form a joint venture, Silverman Retail
Solutions, Inc. ("SRS"), to engage in inventory liquidation services in Canada.
Silverman Jewelers Consultants has provided such services in the U.S. and
intends to utilize the Company's familiarity with the Canadian markets to expand
into Canada via SRS. SRS will purchase and resell, or act as a sales agent, to
sell excess inventory from entities in financial trouble or other entities who
need to dispose of large amounts of inventory quickly. SRS will sell a variety
of consumer products, including jewelry. Management believes that SRS' jewelry
sales will create opportunities to sell the Company's products when packaged
with inventory acquired through the liquidations. There can be no assurance that
the Company will successfully complete the agreement to form the SRS joint
venture or that the SRS operations will provide the Company with significant or
any revenue or net income.

Employees

At May 31, 1998, the Company employed 200 persons on a full-time basis,
including approximately 165 engaged in manufacturing and distribution, 12
salespeople, 16 general and administrative and seven executives, each of whom
performs various other functions such as sales and marketing.

The Company has no unions and believes its relationship with its employees is
good.

                                       12

<PAGE>

Environmental Compliance

Certain of the manufacturing processes utilized by the Company require the use
of chemicals and other hazardous materials. The Company has an ongoing
compliance program to ensure that its manufacturing processes are in compliance
with environmental rules and regulations.

Seasonality

Retail sales of jewelry are weighted to the fourth quarter. According to the
World Gold Council, retail sales by quarter have remained consistent over the
last three years with the fourth quarter accounting for approximately 44% of the
retail dollar sales and 46% of the retail unit sales in the jewelry industry. In
1995 the month of December accounted for 28% of the retail dollar sales and 31%
of the retail unit volumes. For manufacturers these sales patterns reflect a
business that tends to fall one-third in the first half of the year with the
remaining two-thirds in the second half of the year.

While the Company's sales are subject to seasonal fluctuations, this fluctuation
is mitigated to a degree by the early placement of orders by many of the
Company's customers, particularly for the Christmas holiday season. Further,
management believes that its sales and those of its customers are not as
seasonally affected as most competitor's sales because many of the Company's
products are lower priced goods designed for mass merchandising, which generate
year round impulse purchases.






                                       13

<PAGE>

ITEM 2 - DESCRIPTION OF PROPERTY


The Company's executive and administrative offices and primary manufacturing and
marketing facilities are located in a newly-renovated 23,000 square foot
facility in Toronto, Ontario. This facility is leased from 1001 Petrolia Road
Limited Partnership, the general partner being 1013418 Ontario Inc. Jack
Berkovits, Chairman, CEO and President of the Company is the sole shareholder,
officer and director of that general partner. The lease is a 10 year net, net
lease and expires January 31, 2005. Annual lease payments are currently
$100,600, increasing each year by the greater of $.37 a square foot or the
percentage increase in the Consumer Price Index for the Municipality of
Metropolitan Toronto. Real estate taxes, utilities, maintenance and insurance
cost the Company approximately $95,000 for the year ended December 31, 1997.
Management is of the opinion that the terms of the lease are as favorable as
could be obtained from unaffiliated third parties. See "Item 13. Interest of
Management in Certain Transactions."

The limited partnership owned by Mr. Berkovits originally obtained a $660,000
five year mortgage on the property from the Canadian Imperial Bank of Commerce
in 1993. At June 1, 1998, the mortgage was $618,689. The loan was interest free
for the first six months with the balance of the term at 5% per annum. The
Company is a guarantor of this mortgage. A second mortgage was obtained to
secure the Company's financing facilities with The Bank of Nova Scotia.

Effective as of June 1, 1997, the Company entered into a sublease for the 25,000
square foot manufacturing and office facility in Houston, Texas from which Aviv,
Inc. had operated prior to the Company's acquisition of Aviv. The sublease is to
terminate on the earliest of (i) May 30, 2003, (ii) four months after notice is
given by the Company, or (iii) upon termination of the primary lease on the
property. The primary lease is not due to terminate until March 2014, although
it is terminable by the landlord upon certain events, such as the failure of the
tenant to pay rent. The Company pays annual rent of $130,476. The Company
primarily uses the Houston facility for the manufacturing and storage of the
Aviv products, as well as sales, design and administrative offices. Also located
at the Houston Facility is the Company's retail store, which occupies
approximately 1,500 square feet.

Effective as of November 21, 1997, the Company entered into a sublease for the
7,880 square foot facility in Cedar Knolls, New Jersey that Litton Systems had
used to operate Diamonair prior to its acquisition by the Company. The Company
has the option, upon thirty days notice, to reduce the total area which it
occupies and receive a proportionate reduction in rent so long as the Company
occupies at least 5,000 square feet. The sublease terminates on November 20,
1998. The Company has the right to renew the lease for three successive one year
terms. The Company pays annual rent of $84,789. The Company uses the facility
for the assembly and storage of Diamonair products, as well as sales, design and
administrative offices.

The Company believes that its facilities are adequate for the Company's current
operating levels and presently foreseeable growth.

ITEM 3 - LEGAL PROCEEDINGS

On May 29, 1997, Zellers, a department store chain, initiated an action against
the Company in the Ontario Court of Justice (General Division) alleging a breach
of contract for failure by the Company to

                                       14

<PAGE>

credit certain returns to Zellers' account and to provide Zellers with
replacement merchandise. Zellers had been purchasing rings from the Company
pursuant to a contract which was to terminate in December 2001. Zellers is
seeking compensatory damages of $1,800,000, punitive damages of $360,000 and
counsel fees and court costs. The Company intends to vigorously defend the
action. The Company has also filed a counterclaim for breach of the contract,
for, among other claims, Zellers failure to continue to purchase rings from the
Company and the Company is seeking damages in excess of $13,000,000. Although
discovery has occurred, no trial has commenced. The parties are currently
attempting to negotiate a settlement. There can be no assurance that a
settlement will be reached or that any resolution of this matter will not have a
material adverse effect on the Company.

The Company is not a party to any other material litigation nor are any such
proceedings pending or threatened.

ITEM 4 - CONTROL OF REGISTRANT

The Company is not directly or indirectly owned or controlled by another
corporation or by any foreign government.

PRINCIPAL SHAREHOLDERS

         The following table sets forth as of the date of this Prospectus, the
names and beneficial ownership of the Company's Common Stock beneficially owned,
directly or indirectly, by (i) each person who is a director or executive
officer of the Company, (ii) all directors and executive officers of the Company
as a group, and (iii) all holders of 5% or more of the outstanding shares of
Common Stock of the Company, both before and after giving effect to this
Offering.


                                       15

<PAGE>
<TABLE>
<CAPTION>

                                                       Amount and
                                                        Nature of
        Names and Address of Beneficial                Beneficial
                    Owner(1)                           Ownership(2)              Percentage of Shares Outstanding
                    --------                           ------------              --------------------------------

                                                                                Prior to the          Following the
                                                                                  Offering             Offering(3)
                                                                                  --------             -----------
<S>                                                     <C>                         <C>                  <C> 

Jack Berkovits..................................        2,811,250(4)                52.4%                41.0%
The Berkovits Family Trust......................             426,000                 8.2%                 6.4%
Sheba Berkovits(5)..............................          816,000(5)                15.8%                12/3%
Gary Davis......................................           11,250(6)                    *                    *
Leonard Fasullo.................................           11,250(6)                    *                    *
Charles Winston.................................            5,625(6)                    *                    *
Aaron Grubner...................................            7,500(6)                    *                    *
5140 Yonge Street
Suite 1540
Toronto, Ontario M2N 6L7
Joan A. Pajunen.................................            7,500(6)                    *                    *
All directors and executive officers
as a group (6) persons..........................           2,854,375                52.8%                41.4%

</TABLE>

* Less than one %.

          (1) Except as set forth above, the address of each individual is 1001
              Petrolia Road, Toronto, Ontario, Canada M3J 2X7.

          (2) Based upon information furnished to the Company by either the
              directors and executive officers or obtained from the stock
              transfer books of the Company. The Company is informed that these
              persons hold the sole voting and dispositive power with respect to
              the Common Stock except as noted herein. For purposes of computing
              'beneficial ownership' and the percentage of outstanding Common
              Stock held by each person or group of persons named above as of
              the date of this Prospectus, any security which such person or
              group of persons has the right to acquire within 60 days after
              such date is deemed to be outstanding for the purpose of computing
              beneficial ownership and the percentage ownership of such person
              or persons, but is not deemed to be outstanding for the purpose of
              computing the percentage ownership of any other person. As of the
              date of this Prospectus, the Company had 5,165,000 shares of
              Common Stock outstanding and an additional 500,000 shares of
              Common Stock provided for issuance under the 1996 Plan.

          (3) Gives effect to an aggregate of 1,485,000 shares issuable upon
              exercise of the Warrants, the Underwriter's Warrants and the
              Warrants contained therein.

          (4) Includes (i) 426,000 shares of Common Stock owned by the Berkovits
              Family Trust of which Mr.

                                       16

<PAGE>

              Berkovits and his wife are co-trustees; (ii) 390,000 shares of
              Common Stock owned by his wife and (iii) 201,250 shares issuable
              upon options that are currently exercisable or exercisable in the
              next sixty days. Does not include an aggregate of 390,000 shares
              of Common Stock owned by two of Mr. Berkovits' sons who are
              independent of their father; and (ii)176,250 shares of Common
              Stock underlying the Options which are not currently exercisable
              or exercisable in the next sixty days.

          (5) Includes 426,000 shares of Common Stock owned by the Berkovits
              Family Trust of which Ms. Berkovits is a co-trustees. Ms.
              Berkovits is the wife of Jack Berkovits.

          (6) Consists of options which are currently exercisable or exercisable
              in the next sixty days.


ITEM 5 - NATURE OF TRADING MARKET

Since the initial public offering of the Company's Common Stock on April 17,
1998, the Common Stock and Warrants have been traded on the NASDAQ SmallCap
Market ("NASDAQ") under the symbols DGJLF and DGJWF, respectively, and on the
Boston Stock Exchange under the symbols DGJ and DGJW. Prior to April 1997, there
was no market for the Company's shares. There is no non-United States trading
market for such securities and there is no limitation on non-Canadians owning
shares of the Company's Common Stock.

The following are the high and low sales prices reported for the Company's
shares as reported on NASDAQ/NMS during each quarter since such trading
commenced in April 17, 1997:

     Quarter                              High            Low
     -------                              ----            ---

April 18, 1997-June 30, 1997             10 1/8          4 3/4
Third Quarter 1997                        5              1 3/4
Fourth Quarter 1997                       2 11/16        1 3/4

First Quarter 1998                        3 5/8          1 3/4
April 1-June 5, 1998                      5              3 1/2

As of June 1, 1998, there were 13 shareholders of record and approximately 700
beneficial owners.


ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

There are no governmental laws, decrees or regulations in Canada relating to
restrictions on the export or import of capital, or affecting the remittance of
interest, dividends or other payments to non-resident holders of the Company's
common stock. See Item 7 "Taxation".

Except as provided in the Investment Canada Act, there are no limitations
specific to the rights of non-Canadians to hold or vote the common stock of the
Company under the laws of Canada or the Province of Ontario or in the charter
documents of the Company.


                                       17

<PAGE>

The Investment Canada Act requires a non-Canadian making an investment which
would result in the acquisition of control of a Canadian business, the gross
value of the assets of which exceed certain threshold levels or the business
activity of which is related to Canada's cultural heritage or national identity,
to either notify, or file an application for review with, Investment Canada, the
federal agency created by the Investment Canada Act.

The notification procedure involves a brief statement of information about the
investment on a prescribed form which is required to be filed with Investment
Canada by the investor at any time up to 30 days following implementation of the
investment. It is intended that investments requiring only notification will
proceed without government intervention unless the investment is in a specific
type of business activity related to Canada's cultural heritage and national
identity.

If an investment is reviewable under the Act, an application for review in the
form prescribed is normally required to be filed with Investment Canada prior to
the investment taking place and the investment may not be implemented until the
review has been completed and the Minister responsible for Investment Canada is
satisfied that the investments is likely to be of net benefit to Canada. If the
Minister is not satisfied that the investment is likely to be of net benefit to
Canada, the non-Canadian must not implement the investment or, if the investment
has been implemented, must divest himself of control of the business that is the
subject of the investment.


ITEM 7. TAXATION

Management considers that the following general summary fairly describes the
principal Canadian federal income tax consequences applicable to a holder of
common stock of the Company who is a resident of the United States and who is
not a resident of Canada and who does not use or hold, and is not deemed to use
or hold, his common stock in connection with carrying on a business in Canada (a
"non-resident shareholder").

This summary is based upon the current provisions of the Income Tax Act (Canada)
(the ITA), the regulations thereunder (the "Regulations") and the current
publicly announced administrative and assessing policies of Revenue Canada,
Taxation. This description is not exhaustive of all possible Canadian federal
income tax consequences and, does not take into account or anticipate any
changes in law, whether by legislative, governmental or judicial action, nor
does it take into account provincial or foreign tax considerations which may
differ significantly from those\discussed herein.

Dividends

Dividends paid on Common Stock of the Company to a non-resident holder will be
subject to withholding tax. The Canada-US Income Tax Convention (1980) as
amended by the protocol signed on March 17, 1995 (the "Treaty"), provides that
the normal, .25% withholding tax rate is reduced to 5% on dividends paid on
shares of a corporation resident in Canada (such as the Company) to residents of
the United States, and also provides for a further reduction of this rate to 5%
where the beneficial owner of the dividends is a corporation which is a resident
of the United States which owns at least 10% of the voting shares of the
corporation paying the dividend. However, the Company does not anticipate paying
dividends in the near future. See

                                       18

<PAGE>

Item 5, "Nature of Trading Market."

Capital Gains

A non-resident of Canada is not subject to tax under the ITA in respect of a
capital gain realized upon the disposition of a share of a public corporation
unless the share represents "taxable Canadian property" to the holder thereof.
The Company's common stock is listed on a prescribed exchange and therefore will
be taxable Canadian property to a non-resident holder if, at any time during the
period of five years immediately preceding the disposition, the non-resident
holder, non-arms length persons, or the non-resident together with all such
persons owned not less than 25% of the issued shares of any class of the capital
stock of the Company.

In the case of a non-resident holder to whom shares of the Company represent
taxable Canadian property and who is resident in the United States, no Canadian
taxes will be payable on a capital gain realized on such shares by reason of the
Treaty unless the value of such shares is derived from real property or natural
resources situated in Canada. However, in such case, certain transitional relief
under the Treaty may be available. In certain circumstances, the Treaty allows
Canada to tax former residents on gains from the disposition of taxable Canadian
property where such property was owned at the time of their departure from
Canada or was received in substitution therefor in a transaction that is
tax-free under Canadian law.


ITEM 8. SELECTED FINANCIAL DATA

Summary Financial Information

The summary financial information set forth below is derived from the more
detailed consolidated financial statements and notes thereto appearing elsewhere
in this Form 20-F. The Company maintains its books and records in Canadian
Dollars, but has reconciled such financial data to United States dollars (see
'Exchange Rate Data') and has prepared its consolidated financial statements
contained in this Form 20-F in accordance with generally accepted auditing
standards in the United States. See 'Report of Independent Auditors' and
'Consolidated Financial Statements.' All information should be read in
conjunction with the consolidated financial statements of the Company and the
notes contained elsewhere in this Form 20-F.


                                       19

<PAGE>

                                             Year Ended December 31
                                             ----------------------

                                     1995             1996               1997
                                     ----             ----               ----

                                      (In thousands except per share data)
                                      ------------------------------------

     Revenue................       $13,942           $14,182           $22,128
     Gross Profit...........         2,821             2,807             6,450
     Net Income.............           478               457             1,045
     Net Income Per.........          0.12              0.11              0.22
     Share..................



                                                    December 31
                                                    -----------

     Balance Sheet Data:             1995             1996               1997
                                     ----             ----               ----

     Working capital........        $4,637            $3,317           $10,235
     Total assets...........        13,103            16,773            33,922
     Long-term debt.........         2,693             1,081             2,865
     Total liabilities......        10,402            13,610            23,327
     Shareholders'                   2,701             3,163            10,595
     equity.................

--------------
(1)  The Company changed its fiscal year in January 1995 from January 31, to a
     calendar year. Therefore, the fiscal year ended December 31, 1995 includes
     only eleven (11) months rather than a full fiscal year.

(2)  The information in this table has been retroactively restated to reflect a
     39,000-for-1 share stock split in the Company's Shares effected in
     December, 1996. See 'Capitalization.'



ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS.


     The statements contained in this Prospectus that are not historical are
forward looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act, including statements regarding the
Company's expectations, intentions, beliefs or strategies regarding the future.
Forward looking statements include the Company's statements regarding liquidity,
anticipated cash needs and availability and anticipated expense levels. All
forward looking statements included in this Prospectus are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward looking statement. It is important to note
that the Company's actual results could differ materially

                                       20

<PAGE>

from those in such forward looking statements.

     The Company's future success as a manufacturer and distributor of
value-priced, stone-set jewelry will be influenced by several factors including
technological developments in the mass production of jewelry, the ability of the
Company to efficiently meet the design and production requirements of its
customers, and the market acceptance of its jewelry. Further factors impacting
the Company's operations are increases in expenses associated with continued
sales growth, the ability of the Company to control costs, management's ability
to evaluate the public's tastes and orders to target satisfactory profit
margins, the ability to develop and manage the introduction of new designed
products, and competition. Quality control is also essential to the Company's
success, since customers demand compliance with design and product
specifications and consistency of production.

     The Company had an agreement with Diamante, a retail jeweler owned by a
former Vice President of the Company which provided the Company with the ability
to control that company and be entitled to 95% of Diamante's profits. That
agreement, which terminated as of February 7, 1997, resulted in Diamante's
financial statements being consolidated with the Company. The amount of profits
of Diamante that have been recorded in the consolidated financial statements
were approximately $8,000, $27,000 and $0 for the periods ended December 31,
1995, December 31, 1996 and December 31, 1997, respectively. The forfeiture of
the aggregate amount of profits of Diamante for the period since inception to
February 7, 1997 of approximately $35,000 was recorded in the financial
statements for the first quarter of 1997 as a compensation charge. Furthermore,
all sales to Diamante subsequent to February 7, 1997 have been recorded on a
cash basis. The Company's utilization of its high-volume manufacturing
techniques sometimes results in excess inventories. In the past, the Company
either sold these excess inventories in lots at prices which usually resulted in
losses of its investment in labor and overhead and without recovering its full
cost of stones, or it internally recycled the metal and most stones by
disassembling the product, re-melting the gold or silver and removing the
stones. This recycling resulted in additional incurred labor and overhead costs.
Once Diamante established its factory outlet stores, it provided the Company
with an opportunity to sell its excess inventories on more favorable terms. The
Company, by selling to Diamante then avoided the costs and losses that it had
incurred in the past and afforded it a more advantageous method of dealing with
its excess inventories. The Company is the primary supplier of product to
Diamante and the Company's account receivable from Diamante is fully secured by
all the assets of Diamante, which security interest has been pledged by the
Company to The Bank of Nova Scotia for the Company's financing facilities. The
Company performs certain administrative functions for Diamante.

     Generally, the Company does not provide products pursuant to long-term
contracts. The Company has an exclusive jewelry supply contract with Zellers,
Inc. of Canada ("Zellers") that, pursuant to its terms, is to terminate in
December 2001. Sales to Zeller's were $1.6 million in 1996 and $550,000 in 1997.
Currently, the Company is in litigation with Zellers and Zellers is not
purchasing any products from the Company. See Item 3 - Legal Proceedings.

     On November 21, 1997, the Company acquired substantially all of the assets
of the wholesale jewelry division of Litton Systems, Inc., which division had
operated under the trade name Diamonair, for approximately $5.8 million. The
acquisition was accounted for using the purchase accounting method. In
accordance with the purchase accounting method, Diamonair's results

                                       21

<PAGE>

have been included in the Company's consolidated financial statements since the
acquisition date.

     Sales of Diamonair products after the acquisition by the Company on a
non-consolidated, unaudited basis were approximately $3.8 million and the profit
margin was approximately 25%. Diamonair purchased products from approximately 20
suppliers. The Company believes that it can increase the profit margin on
Diamonair products by increasing the amount of Diamonair products manufactured
by the Company using the D.G. Manufacturing Process. The Company also intends to
increase sales of Diamonair products by introducing the Diamonair products into
the distribution lines used by the D.G. Division and the Aviv Divisions.

     On February 10, 1998, the Company completed its acquisition of
substantially all of the assets of Aviv, Inc., by assuming approximately $4.3
million in debt. The effective date of the acquisition was June 1, 1997. The
acquisition was accounted for using the purchase accounting method. In
accordance with the purchase accounting method, Aviv's results have been
included within the Company's consolidated financial statement since the
effective date of the acquisition on June 1, 1997.

     Sales of Aviv products after the acquisition by the Company on a
non-consolidated, unaudited basis were approximately $7.3 million and the profit
margin was approximately 24%. Of Aviv's sales, approximately $700,000 were
attributable to the New York Gold and Diamond Exchange, a retail store at Aviv's
facilities in Houston, Texas. The Company does not anticipate that the cost of
many of the Aviv products will be reduced significantly by the D.G.
Manufacturing Process. Aviv's products generally are made with more expensive
metals and stones than the Company's other products. Therefore, savings in the
manufacturing process do not result in unit cost reductions that are material in
relation to the total price of the Aviv jewelry. The Company also intends to
increase sales of Aviv products by introducing the Aviv products to the
distribution lines used by the D.G. Division ad Diamonair Division.

     Currently, the Company is reviewing its administrative costs to determine
if there are areas where expenses could be reduced through further integration
and consolidation of the acquisitions. Although the Company expects to achieve
some level of consolidation, these potential cost reductions are limited in many
areas because (i) operating in the United States and Canada limits the
advantages of consolidating certain accounting and human resources functions and
(ii) Management believes that maintaining the existing Aviv and Diamonair sales
offices and manufacturing facilities will be beneficial for maintenance of those
divisions' existing customer relationships and will increase the Company's
opportunities in the United States.

     Fluctuations in the Canadian dollar against other currencies, especially
the U.S. dollar, may have a material adverse effect on the Company's results of
operations. A substantial portion of the Company's sales and purchases are set
in U.S. dollars or are influenced by local currency against the U.S. dollar. To
date, the Company has not sought to hedge the risks associated with fluctuations
in exchange rates and does not a have a policy relating to hedging. See Note 2
to the Consolidated Financial Statements and "Exchange Rate Data."

     Many computer systems and software products worldwide will not function
properly as the year 2000 approaches due to the common programming device of
using just the last two digits of a year in all dates. Currently, the Company is
reviewing its computer software and hardware

                                       22

<PAGE>

to determine what changes will be necessary to avoid this problem. The Company
expects to implement any necessary changes in Fiscal 1999. The Company does not
believe that the costs of implementing necessary changes to its computer systems
will have a material adverse effect on the Company.


Results of Operations

Year Ended December 31, 1997 as Compared to Year Ended December 31, 1996

     Sales for the year ended December 31, 1997 ("Fiscal 1997) were $22.1
million, as compared to $14.2 million for the year ended December 31, 1996
("Fiscal 1996"). This $7.9 million, or 56%, increase was primarily due to the
addition of Aviv revenue of $7.3 million and Diamonair revenue of $3.8 million.
Revenue from the D.G. Division decreased by $3.2 million due to a change in the
product and customer mix, which resulted in lower volumes or more expensive,
higher margin goods being sold in Fiscal 1997.

     Cost of sales increased to $15.7 million in Fiscal 1997 as compared to
$11.4 million in Fiscal 1996. This $4.3 million, or 38%, increase was primarily
due to the increase in sales. Gross margin (which is gross profit primarily
expressed as a percentage of sales) increased to 29% in Fiscal 1997 from 20% in
Fiscal 1996. Gross margin increased due to a change in the product and customer
mix discussed above.

     Selling, general and administrative costs increased to $3.7 million in
Fiscal 1997 from $1.1 million in Fiscal 1996. This $2.6 million, or 26%,
increase is due to the increased expenses associated with operating from
multiple locations and being a public company. In particular, professional fees
increased by $750,000 due to costs associated with being a public entity and
transaction costs associated with the acquisitions. Executive salaries increased
by $417,000, partially due to the increase in executives required to operate in
three locations.

     Interest and other expenses increased to $1.2 million in Fiscal 1997 from
$923,000 in fiscal 1996. Interest expense increased by $26,000 in Fiscal 1997 to
$822,000 as a result of increased borrowings, however the Company's weighted
average interest rate was reduced from 6.58% in Fiscal 1996 to 5.42% in Fiscal
1997. Other expenses increased primarily due to a $280,000 write down of
receivables from Zellers.

     Due to increased income before taxes, the Company's taxes increased to
$541,000 from $296,000. However, the Company's effective tax rate was reduced to
34% from 39% due to the increase in the percentage of income from U.S.
operations, which has a lower tax rate than Canada.

     As a result of the foregoing, net income increased to $1.0 million in
Fiscal 1997 from $457,000 in Fiscal 1996.

                                       23

<PAGE>

Year Ended December 31, 1996 Compared to Fiscal Year Ended December 31, 1995
(11 Months)

     The Company changed its fiscal year end in 1995 to December 31, from a
January 31 year-end in the previous year resulting in an 11 month fiscal year.

     Sales for fiscal 1996 increased by 1.4% compared to fiscal 1995; however,
if January, 1996 is included in the 1995 fiscal year (in order to bring it to 12
months), then the sales actually decreased by 9.0%. This decrease was generated
by (i) the bankruptcy of a major Canadian customer; (ii) management's decision
to reduce the sales volume to low gross profit margin customers; and (iii) the
effect of the consolidation with Diamante. As a result, total sales dropped by
9.0% but gross profit as a percentage of sales increased to 22.7% in 1996 from
21.4% for the year ended Dec. 31, 1995. Gross profit has increased from the year
ended January 31, 1995 when gross profit was 15.5%.

     The operating expenses for the current year increased to approximately
$12,265,000 from approximately $12,068,000 for the year ended December 31, 1995.
However, if the month of January, 1996 is added to bring the fiscal year to 12
months, then the total operating expenses actually decreased by approximately
$1,234,000. This decrease is mostly the result of reduction of operating costs
due to a reduction in sales.

     Financial expenses and other income decreased to approximately $858,000
from $956,000. If the month of January, 1996 is added to the 11 month fiscal
year, then the decrease is actually $178,000. This reduction is attributed
mostly to the following: i) decrease in interest expense of approximately
$110,000 due to decreased interest rates in 1996; ii) decrease in other expenses
of approximately $25,000; iii) an increase in shipping and handling charges of
approximately $40,000.

     Income before income taxes was $818,123 compared to $743,755, an increase
of $74,368. However, if the month of January, 1996 is added to the fiscal year
1995 the income increased by only approximately $2,000. The increased income,
despite a 9% decline in sales, is the result of the implementation of the
management's program to: (i) decrease sales to low gross profit margin
customers;(ii) optimization of the use of internal resources; (iii) reduction of
expenses through tighter internal controls.

     The income tax expenses reflect the current tax rate for the company; the
taxes for the previous fiscal year were lowered by a loss carry forward which
was utilized in 1995. This resulted in decreased income after taxes.

Liquidity and Capital Resources

     In April 1997, the Company completed an initial public offering in which it
sold 1,265,000 shares of Common Stock and 1,265,000 Warrants. The Company
realized net proceeds of $6.7 million from this offering. The Company may
realize additional proceeds from the exercise of the Warrants, although three
can be no assurance that such Warrants will be exercised.

     The Company currently has an operating line of credit with The Bank of Nova
Scotia in the amount of $20.3 million subject to certain margin requirements.
See Note 8 to the "Consolidated Financial Statements." The amount available to
the Company is equal to 75% to 80% of "eligible

                                       24

<PAGE>

accounts receivable", as defined in the Line of Credit Agreement, plus 50% of
the inventory values up to a maximum advance against inventory of approximately
$9.7 million. The Company utilized the credit line to borrow the $5.8 million
and $4.3 million necessary for the acquisitions of Diamonair and Aviv,
respectively.

     The Company's borrowings under the Line of Credit bear interest at Canadian
prime plus 1/2% which at June 1, 1998 amounted to 6.5%. Interest on any
borrowings is payable monthly. The Company is in full compliance with all of the
banking covenants (including the financial covenants and ratios) and is required
to report to its bankers on a monthly basis.

     The Company's obligations under the revolving credit facility are secured
by a security interest on all the assets of the Company, guaranteed by Diamante,
a jewelry retail chain owned by a former Vice President of the Company and
further secured by a mortgage on the property owned by a limited partnership
controlled by Jack Berkovits and leased to the Company, which mortgage is
guaranteed by the Company.

     At December 31, 1997, the Company owed $3.0 million to Bank Boston, which
loan had been assumed pursuant to the Aviv acquisition. The Company utilized
proceeds from the Bank of Nova Scotia line of credit to repay this loan in
February 1998.

     For the year ended December 31, 1997, the Company used cash from operating
activities of $11.2 million, primarily due to an increase of accounts receivable
of $8.3 million and an increase in inventory of $6.1 million.

     The Company's accounts receivable net of allowances for doubtful accounts
as of December 31, 1997 was $17.2 million, or 78% of revenue for Fiscal 1997.
Accounts receivable is such a large percentage of sales because (i) accounts
receivable include a 7% goods and services tax and a 10% federal excise tax on
most Canadian sales, which taxes are not included in sales (ii) sales volume in
the fourth quarter was higher than the rest of the year due to the acquisitions
during the year of Aviv and Diamonair (iii) sales volume is generally higher in
the fourth quarter and some customers do not pay the Company for goods until
after the holiday selling season.

     The Company's inventory as of December 31, 1997 was $12.9 million, or 58%
of revenue for Fiscal 1997. Inventory is such a large percentage of sales
because the inventory reflects needs for all three divisions, while sales
reflects the Aviv and Diamonair divisions only after their acquisitions. The
increased inventory also reflected management's belief that sales will increase
in the first quarter of 1998 due to increased exposure on television shopping
networks.

     At December 31, 1997, the Company had loans outstanding to its principal
shareholder, Jack Berkovits, of $2.0 million and such loans bear interest at 10%
per annum. In the event that any Warrants are exercised, the proceeds will be
applied to working capital, as well as a potential repayment of a portion of its
credit facility.

     The Company anticipates that cash flow from operations, as well as
borrowings available under the Company's existing credit line will be sufficient
to satisfy the Company's credit needs for the next twelve months.

                                       25

<PAGE>

ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT.

MANAGEMENT

     The directors and executive officers of the Company are as follows.
Mr. Feiler and Mr. Bonsignore will be nominated to serve as directors at the
Company's next Annual Meeting:


                                                                      Position
                                                 Position with the      Held
                 Name                  Age           Company           Since

    Samuel J. Berkovits...........     45        Chairman of the        1979
                                                 Board, CEO and
                                                 President
    
    Gary Davis....................     50        Vice President--       1987
                                                 Finance Chief
                                                 Financial Officer,
                                                 Controller,
                                                 Treasurer,
                                                 Secretary

    Leonard Fasullo...............     56        Vice President--       1989
                                                 Production

    Charles Winston...............     40        Vice President--       1997
                                                 U.S. Operations

    Aaron Grubner.................     50        Director               1997

    Joan A. Pajunen...............     55        Director               1997

    Meyer Feiler..................     45        Director Nominee       1996

    Theodore Bonsignore...........     51        General Manager--      1998
                                                 Diamonair,
                                                 Director Nominee


     Samuel Jacob "Jack" Berkovits has served as President and a director of the
Company since 1979. He is a founding member of the Jeweller's Vigilance
Committee (Canadian Jeweler's Association) and is active in community affairs.
Mr. Berkovits became a member of the Canadian Institute of Chartered Accountants
in 1976. He practiced as an accountant in Montreal from 1972 to 1977 when he
joined the Company.

     Gary Davis has served as Chief Financial Officer and Vice President -
Finance of the Company since 1987. Prior to that, Mr. Davis served for 12 years
as Chief Financial Officer at a Canadian company engaged in manufacturing
jewelry. Mr. Davis has been a certified general accountant since 1972.

                                       26

<PAGE>

     Leonard Fasullo has been Vice President - Production of the Company since
1989. Mr. Fasullo joined the Company as a manufacturing foreman in 1984.

     Charles Winston has been Vice President - U.S. Operations of the Company
since March 1996. Mr. Winston was Vice President of national accounts at
Princess Pride Creations from March 1995 until March 1996, at B. D'Elia from
1994 until March 1995 and at World Wide Imports from 1991 until 1994.

     Theodore Bonsignore has served as General Manager of Diamonair since May,
1998. Mr. Bonsignore works for the Company an average of between fifteen - to
twenty hours a week and also operates T.L. Bonsignore Management and Advisory
Services, a consulting firm specializing in the jewelry industry. From 1975 to
1997, Mr. Bonsignore was employed by Krementz & CO., a jewelry manufacturer,
serving as President since 1990. Mr. Bonsignore has been a director of the
Jewelers Board of Trade since 1990 and has served as Chairman of that Board
since 1998. Mr. Bonsignore is a certified public accountant. Mr. Bonsignore will
be nominated to serve as a director at the Company's annual meeting.

     Aaron Grubner is a lawyer admitted to practice before The Bar of the
Province of Ontario. He has been practicing law since 1973, primarily corporate
and commercial law in Toronto, Ontario. Mr. Grubner is a founding member of the
law firm of Grubner, Krauss and represents the Company with respect to corporate
and commercial matters.

     Joan A. Pajunen is managing director of Service Dimensions, Inc., an
international retail and service industry consulting firm with which she has
been affiliated since 1985. She is a member of the board of directors of
Workbench, Inc., a major private United States furniture retailer. Ms. Pajunen
is an author and international speaker.

     Meyer Feiler has been President of Carmen Incorporated, one of the largest
jewelry companies in Canada since 1993. Mr. Feiler has worked at Carmen
Incorporated since 1979.

     There is no family relationship between any of the above named officers or
directors.

     The term of office for directors and officers is one year.

Audit and Compensation Committees

The Audit Committee consists of Messrs. Pajunen and Grubner. The
responsibilities of the audit committee include recommending to the board of
directors the firm of independent auditors to serve the Company, reviewing the
independent auditors reports, services and results of audit, and reviewing the
scope, results and adequacy of the Company's internal control procedures. The
Compensation Committee consists of Messrs. Pajunen, Grubner and Berkovits. The
compensation committee is expected to periodically review and evaluate officers'
compensation and will administer the Company's 1996 Stock Option Plan.

     For a period of three years after the effective date of the Company's
Initial Public Offering

                                       27

<PAGE>

on April 17, 1997, the Company has agreed to invite a designee of Dillon to
attend all meetings of the board of directors, but such designee will not be
entitled to vote or be compensated.

     It is not expected that any director or committee member will receive any
compensation for acting in such capacity. The Company will reimburse directors
and committee members for all ordinary and necessary expenses incurred in
attending any meeting of the board or any committee thereof.

ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS.

Executive Compensation

     The Summary Compensation Table below sets forth compensation paid by the
Company and its subsidiaries for the last three fiscal year for services in all
capacities for its CEO and any other officer who received a total annual salary
and bonus from the Company which exceeded $100,000.

Summary Compensation Table

     The following table sets forth all cash compensation for services rendered
in all capacities to the Company, for the fiscal years ended December 31, 1997,
December 31, 1996 and January 31, 1996 paid to the Company's Chief Executive
Officer, and the two other most highly compensated executive officers (the
"Named Executive Officers") at the end of the above fiscal years whose total
annual salary plus bonus exceeded $100,000 per annum.

<TABLE>
<CAPTION>

                                                                  
         Name and          Year/        Annual                   Restricted                   Other
        Principal         Period       Compensa-                   Stock     Options/       Compensa-
         Position         Ended          tion           Bonus      Awards      SARs           tion
         --------         -----        --------         -----      ------      ----         ---------

     <S>                  <C>          <C>             <C>            <C>    <C>           <C>      
     Jack Berkovits,      1997         $197,242        187,798        0      377,500       $12,000(1)
     Chief                1996         $147,061                       0            0       $12,000(1)
     Executive            1995         $146,600                       0            0       $12,000(1)
     Office
     and
     Chairman........

     Gadi Beer,           1997(2)      $109,375                       0            0
     Vice President       1996                                        0            0
     of Sales and         1995                                        0            0
     Aviv............

</TABLE>

     1. Represents auto allowance.
     2. Mr. Beer's employment with the Company commenced on June 1, 1997, after
        the Company's acquisition of Aviv.

Employment Contracts and Termination of Employment Change and Change-In-Control
Arrangements

     Jack Berkovits and the Company entered into a three year employment
agreement commencing April 17, 1997 for Mr. Berkovits to serve as Chief
Executive Officer and President at an annual salary of $250,000 with yearly
increases of no less than $10,000. Should Mr. Berkovits die during the term of
this agreement, his estate or designee shall receive, upon his

                                       28

<PAGE>

death, two years full salary. In the event of disability, Mr. Berkovits is to
receive 70% of his salary for the remainder of the term of the agreement. The
agreement also provides for the Company to maintain approximately $2,000,000 in
key-man insurance on the life of Mr. Berkovits. Currently, the Company is
beneficiary of two "key-man" term policies with a total death benefit of
$840,000. The $700,000 policy has been assigned to secure the Company's
financing facilities with The Bank of Nova Scotia. The Company maintains a third
policy with a death benefit of $1.1 million for which Mr. Berkovits is the
beneficiary.

     Based upon any wrongful termination, which includes changes in control of
the Company through an acquiring person (any person who has acquired or
announces a tender offer or exchange for 25% of the Company), a sale of
substantially all of the assets or merger, acquisition of the Company or its
consolidation with another, or certain types of board changes, the Company shall
pay Mr. Berkovits a lump sum payment, based upon his then compensation,
including benefits and perquisites, from such termination. Such payment shall be
the balance of his compensation for the remainder of the term or compensation
for one year whichever is less; provided, if the payment is in excess of
$100,000, then such excess shall be payable in equal quarterly payments with
interest at the legal rate. The employment agreement also contains a one-year
non-competition provision within a 200 mile radius of the Company's primary
operation in Canada or anywhere in the United States.

     The Company entered into an employment agreement with Gadi Beer, the Vice-
President of Sales and Marketing of Aviv for a term of one year terminating on
February 9, 1999. Mr. Beer earns an annual base salary of $120,000 and is
entitled to receive 0.8% of the total sales of Aviv. Mr. Beer has agreed to a
covenant not to compete with the Company for a period of three years from the
date of termination of the agreement. The agreement is renewable for additional
successive one year terms upon the consent of both parties.

     No other officer has an employment contract with the Company.

Compensation of Directors

     There are no standard arrangements for the payment of any fees to directors
of the Company for acting in such capacity. Directors are reimbursed for
expenses for attending meetings.

     The Company has adopted a 1996 Stock Option Plan pursuant to which options
have been granted to officers, directors, consultants, key employees, advisors
and similar parties who provide their skills and expertise to the Company.

ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES.

     In December 1996, the board of directors and shareholders adopted the 1996
D.G. Jewellery of Canada Ltd. Stock Option Plan (the "1996 Plan"), pursuant to
which 500,000 shares of Common Stock are provided for issuance.

     The 1996 Plan is administered by the compensation committee or the board of
directors, who determine among other things, those individuals who shall receive
options, the time period during which the options may be partially or fully
exercised, the number of shares of Common Stock issuable upon the exercise of
the options and the option exercise price.

                                       29

<PAGE>

     The 1996 Plan is for a period of ten years, expiring on December 15, 2006.
Options may be granted to officers, directors, consultants, key employees,
advisors and similar parties who provide their skills and expertise to the
Company. Options granted under the 1996 Plan may be exercisable for up to ten
years, may require vesting, and shall be at an exercise price all as determined
by the board. Options are non-transferable except by the laws of descent and
distribution or a change in control of the Company, as defined in the 1996 Plan.
Change in control includes (i) the sale of substantially all the assets of the
Company or its merger or consolidation with another, or (ii) a majority of the
board changes other than by election of shareholders pursuant to board
solicitation or by vacancies filled by the board caused by death or resignation,
or (iii) a person or group acquires 25% or makes a tender offer for 25% of the
Company's outstanding shares.

     If a participant ceases affiliation with the Company by reason of death,
permanent disability or retirement at or after age 65, the option remains
exercisable for one year from such occurrence but not beyond the option's
expiration date. Other termination gives the participant three months to
exercise except for termination for cause which results in the option becoming
immediately null and void.

     Options granted under the 1996 Plan, at the discretion of the compensation
committee or the board, may be exercised either with cash, Common Stock having a
fair market equal to the cash exercise price, the participant's personal
recourse note, or with an assignment to the Company of sufficient proceeds from
the sale of the Common Stock acquired upon exercise of the options with an
authorization to the broker or selling agent to pay that amount to the Company,
or any combination of the above.

     The exercise price of an option may not be less than the fair market value
per share of Common Stock on the date the option is granted in order to receive
certain tax benefits under the Income Tax Act of Canada (the 'ITA'). The
exercise price of all future options will be at least 85% of the fair market
value of the Common Stock on the date of grant of the options. A benefit equal
to the amount by which the fair market value of the shares at the time the
employee acquires them exceeds the total of the amount paid for the shares or
the amount paid for the right to acquire the shares shall be deemed to be
received by the employee in the year the shares are acquired pursuant to
paragraph 7 (1) of the ITA. Where the exercise price of the option is equal to
the fair market value of the shares at the time the option is granted, paragraph
110(1)(d) of the Act allows a deduction from income equal to one quarter of the
benefit as calculated above. If the exercise price of the option is less than
the fair market value at the time it is granted, no deduction under paragraph
110(1)(d) is permitted. Options granted to any non-employees, whether directors
or consultants or otherwise will confer a tax benefit in contemplation of the
person becoming a shareholder pursuant to subsection 15(1) of the ITA.

     Options may not be transferred by an optionee other than by will or the
laws of descent and distribution, and, during the lifetime of an optionee, the
option will be exercisable only by the optionee.

     Options under the 1996 Plan must be issued within ten years from the
effective date of the 1996 Plan.

     Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the 1996 Plan.

     The 1996 Plan may be terminated or amended at any time by the board of
directors, except that the number of shares of Common Stock reserved for
issuance upon the exercise of options granted under the 1996 Plan may not be
increased without the consent of the shareholders

                                       30

<PAGE>

of the Company.

     In February 1997, the Board granted 172,500 Options under the 1996 Plan to
20 persons, including officers, directors and key employees. The Options were to
be exercisable at $4.50 per share for five years expiring February 9, 2002. On
August 22, 1997, the Compensation Committee lowered the exercise price to $1.38,
which was the Company's stock price on such date. On August 22, 1997, the
Company granted an additional 327,500 options exercisable at $1.38 per share to
Jack Berkovits. All options granted vest and become issuable at the rate of 25%
every six months so that the options are fully vested and issuable two years
from their issuance date. The table below reflects the Options granted to the
present officers and directors of the Company and the percentage of Options
owned by such persons.

<TABLE>
<CAPTION>

              Officer and/or         Expiration                               Exercise
                 Director               Date         Options      Percent      Price
                 --------               ----         -------      -------      -----
          <S>                         <C>           <C>           <C>          <C>
          Jack Berkovits.........     (1)           377,500       75.5%        $1.38
          Gary Davis.............     02/09/02       15,000        3.0%        $1.38
          Drew Bricker...........     02/09/02       15,000        3.0%        $1.38
          Leonard Fasullo........     02/09/02       15,000        3.0%        $1.38
          Charles Winston........     02/09/02        7,500        1.5%        $1.38
          Aaron Grubner..........     02/09/02       10,000        2.0%        $1.38
          Joan A. Pajunen........     02/09/02       10,000        2.0%        $1.38

</TABLE>

          --------
          (1) 327,500 of such options expire on August 21, 2002 and 50,000
              expire on February 9, 2002.

ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.

     In February 1995, the Company entered into a 10 year lease consisting of
23,000 square feet for its executive offices and manufacturing operations in
North York, Ontario. The lease is with 1001 Petrolia Road Limited Partnership
("Petrolia L.P."), the general partner being Ontario Inc. Jack Berkovits,
Chairman, CEO and President of the Company, is the sole owner, officer and
director of that general partner. Current rent is $100,605 and increases each
year by the greater of $.37 a square foot or the percentage increase in the
Consumer Price Index for the Municipality of Metropolitan Toronto. Additionally,
the Company is paying real estate taxes, utilities and insurance aggregating
$95,000 per year for this facility. See Item 2 - Description of Property.
Management is of the opinion that the lease is on terms as favorable as
obtainable from unaffiliated third parties.

     Petrolia L.P. through #1013418 Ontario, Inc., the general partner, owned by
Mr. Berkovits, has obtained a five year $660,000 mortgage on the property, which
at April 30, 1998 was in the principal amount of $565,000, with interest at 5%
per annum. The Company is a guarantor of this mortgage. See "Note 10" to "Notes
to Consolidated Financial Statements."

     Jack Berkovits loaned the Company monies from time to time for operations
and working capital which sums at April 30, 1998 aggregated approximately $1.9
million and the

                                       31

<PAGE>

weighted average interest rate was 10%. In 1997, the Company repaid $1.2 million
of such loans, including payments to a third party, Laurbrad Holdings Limited,
who had loaned funds to Mr. Berkovitz. Mr. Berkovitz loaned the funds to the
Company on the same terms, which included a 20% annual interest rate.

     Diamante is a Canadian company operating under the name Oromart which has
five retail jewelry stores. Diamante is owned by a former Vice President of the
Company, Drew Bricker, who is also Diamante's President (since 1984). In 1986,
when Mr. Bricker joined the Company as Vice President of Marketing, Diamante
became inactive. It reinitiated jewelry outlet stores in 1994. Pursuant to an
agreement between the Company and Diamante, recently rescinded, the Company
acted as exclusive supplier of inventory to Diamante. In 1994 and 1995, the
Company had advanced approximately $50,000 to Diamante to initiate the Diamante
stores including leasehold improvements all of which has been repaid. The
Company does not anticipate advancing any further funds to Diamante. The
inventory provided to Diamante, consists primarily of manufacturing surplus,
returns or refurbished jewelry, and on occasion gold chains and watches
purchased by the Company for resale to Diamante. The inventory is secured by a
registered security agreement covering the assets of Diamante, which security
agreement has been assigned to The Bank of Nova Scotia which holds a substantial
security interest in the assets of the Company. Diamante has guaranteed the
Company's bank financing and provided the bank with a direct security interest
in its assets. The Company consolidated, for financial reporting purposes, with
Diamante until February 7, 1997, the termination date of the agreement with
Diamante reflecting the Company's control over that retail operation. The
Company performs certain administrative functions for Diamante. See Item 9.

     Diamante leases each facility for its five stores, of which two leases are
guaranteed by the Company. Each of these two leases are terminable by Diamante
on 90 days written notice, and each is for five years, is a net, net lease, with
renewal options, one lease for a rental of approximately $17,000 per year plus
taxes, maintenance, insurance and utilities. The other guaranteed lease calls
for a rental of approximately $20,000 per year plus taxes, maintenance,
insurance and utilities.

     All transactions between the Company, its officers, directors, principal
shareholders or affiliates are, in the opinion of management, except for the
interest rate charges on a portion of Mr. Berkovits' loans which are above the
market rate, on terms no less favorable to the Company then may be obtained from
unaffiliated third parties. All future transactions and loans between itself and
its officers, directors and 5% shareholders to be on terms no less favorable
than could be obtained from independent, unaffiliated parties and will be
approved by a majority of the independent, disinterested directors of the
Company.

                                       32

<PAGE>

                                     PART II

ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED.
Not applicable.


                                    PART III

ITEM 15. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.

ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR
REGISTERED SECURITIES.
Not applicable.



                                       33

<PAGE>

                                     PART IV

ITEM 17. FINANCIAL STATEMENTS
See Pages F-1 to F -

ITEM 18. FINANCIAL STATEMENTS
Not applicable.

ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS.

(a). See the Exhibit to the Financial Statements on Page F-1.

(b).                            Exhibit Index


          Exhibit
          Number       Description
          ------       -----------

          3(a)         Articles of Incorporation+

          (b)          By-laws of the Company+

          4(a)         Form of Common Stock Certificate of the Company+

          (b)          Form of Redeemable Common Stock Purchase Warrant+

          (c)          Form of Underwriters' Options+

          (d)          Form of Warrant Agreement between the Company, American
                       Stock Transfer & Trust Co. and Joseph Dillon & Company,
                       Inc.+

          5(a)         Opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP

          10(a)        Lease between 1013418 Ontario Inc., In Trust and the
                       Company dated February 1, 1995+

          (b)          Operating Credit Line between the Company and The Bank of
                       Nova Scotia dated July 15, 1996+

          (c)          Security Agreement between the Company and The Bank of
                       Nova Scotia dated November 21, 1994+

          (d)          General Assignment by the Company to The Bank of Nova
                       Scotia dated November 21, 1994+

          (e)          Assignment of keyman life insurance by the Company to The
                       Bank of Nova Scotia dated November 29, 1994+

          (f)          Priority Agreement between the Company, The Bank of Nova
                       Scotia, Laurbrad Holdings Limited and Jack Berkovits
                       dated December 1, 1995+

          (g)          Priority Agreement between The Bank of Nova Scotia, Jack
                       Berkovits and Laurbrad Holdings Limited dated December 1,
                       1995+

                                       34

<PAGE>



          (h)          Priority Agreement between the Company, The Bank of Nova
                       Scotia and Jack Berkovits dated December 1, 1995+

          (i)          Pledge and Assignment of Security Interest held by the
                       Company in Diamante Fine Jewellery Limited and The Bank
                       of Nova Scotia dated December 1, 1995 including General
                       Security Agreement from Diamante Fine Jewellery Limited
                       to the Company dated May 11, 1995.+

          (j)          Guarantee of payment by 1013418 Ontario, Inc. to The Bank
                       of Nova Scotia dated November 21, 1994+

          (k)          Collateral Mortgage from 1013418 Ontario, Inc. to The
                       Bank of Nova Scotia dated November 30, 1994+

          (l)          Loan Agreement between the Company and Jack Berkovits
                       dated May 31, 1995+

          (m)          Promissory Note of the Company to Jack Berkovits dated
                       May 31, 1995+

          (n)          Security Agreement granted by the Company to Jack
                       Berkovits dated May 31, 1995+

          (o)          Loan Agreement between the Company, Jack Berkovits and
                       Laurbrad Holdings Limited dated November 30, 1995+

          (p)          Loan Agreement between the Company and Jack Berkovits
                       dated November 30, 1995+

          (q)          Promissory Note of the Company to Jack Berkovits dated
                       November 30, 1995+

          (r)          Guarantee by the Company of Diamante Fine Jewellery
                       Limited Cookstown Mall Lease dated March 24, 1995+

          (s)          Guarantee by the Company of Diamante Fine Jewellery
                       Limited St. Jacobs Lease dated July 14, 1993+

          (t)          Promissory Note of the Company to Sherfam, Inc. dated
                       April 1, 1996+

          (u)          Equipment lease between the Company and The Bank of Nova
                       Scotia(three equipment leases substantially similar)
                       dated April 29, 1994+

          (v)          General Security Agreement from Diamante Fine Jewellery
                       Limited to The Bank of Nova Scotia dated August 4, 1995+

          (w)          Diamante Fine Jewellery Limited Guarantee of the
                       Company's Bank Financing dated August 1, 1995+

          (x)          Agreement between the Company and Diamante Fine Jewellery
                       Limited dated May 3, 1995+

          (y)          Agreement between Rent-A-Center and the Company dated
                       November 20, 1996, as clarified by letter dated December
                       13, 1996+

                                       35

<PAGE>

          (a)(a)       1996 Stock Option Plan of the Company+

          (a)(b)       Form of Stock Option Certificate under 1996 Stock Option
                       Plan+

          (a)(c)       Form of Lock-Up Letter by Jack Berkovits, the Berkovits
                       Family Trust and Mr. Berkovits' two sons+

          (a)(d)       Employment Agreement between the Company and Jack
                       Berkovits dated December 20, 1996, as amended+

          (a)(e)       Recission Agreement between the Company and Diamante Fine
                       Jewellery Limited dated February 7, 1997+

          (a)(f)       Purchase and Sale Agreement between Diamonair, Inc. and
                       Litton Systems, Inc. dated November 21, 1997.

          (a)(g)       Asset Purchase Agreement between the Company and Aviv,
                       Inc. dated February 10, 1998.

          (a)(h)       Employment Agreement between the Company and Gadi Beer
                       dated February 10, 1998.

          23(a)        Consent of Gersten, Savage, Kaplowitz & Fredericks, LLP
                       (included on Page II-7)

          (b)          Consent of Grubner, Krauss (included in their opinion
                       filed as Exhibit 5(a))

          (c)          Consent of Schwartz Levitsky Feldman (included on
                       Page II-6)

          24           Power of Attorney+

          + Documents previously filed with this Registration Statement

                                       36

<PAGE>


                                   SIGNATURES


     Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, hereunder duly authorized.



                                       For and on Behalf of

                                       D.G. JEWELLERY OF CANADA LTD.


                                       By: /s/ Gary Davis
                                           -------------------------
                                               Gary Davis
                                               Vice President-Finance and Chief
                                               Financial Officer


Date: June 25, 1998



                                       37
<PAGE>

                          D.G. JEWELLERY OF CANADA LTD.

                        CONSOLIDATED FINANCIAL STATEMENTS

                  AS OF DECEMBER 31, 1997 AND DECEMBER 31, 1996

                         TOGETHER WITH AUDITORS' REPORT





<PAGE>

                          D.G. JEWELLERY OF CANADA LTD.

                        CONSOLIDATED FINANCIAL STATEMENTS

                  AS OF DECEMBER 31, 1997 AND DECEMBER 31, 1996

                         TOGETHER WITH AUDITORS' REPORT


                               TABLE OF CONTENTS

Report of Independent Auditors                                                 1

Consolidated Balance Sheet                                                     2

Consolidated Statement of Income                                               3

Consolidated Statement of Cash Flows                                           4

Consolidated Statement of Stockholders' Equity                                 5

Notes to Consolidated Financial Statements                                  6-18


<PAGE>

Schwartz Levitsky Feldman
CHARTERED ACCOUNTANTS
TORONTO, OTTAWA, MONTREAL

                         REPORT OF INDEPENDENT AUDITORS


       To the Board of Directors and Stockholders of
       D.G. Jewellery of Canada Ltd.


       We have audited the accompanying consolidated balance sheets of D.G.
       Jewellery of Canada Ltd. (incorporated in Canada) and subsidiaries as of
       December 31, 1997 and 1996 and the related consolidated statements of
       income, cash flows and changes in stockholders' equity for the years
       ended December 31, 1997 and 1996. These consolidated financial statements
       are the responsibility of the company's management. Our responsibility is
       to express an opinion on these consolidated financial statements based on
       our audits.

       We conducted our audits in accordance with generally accepted auditing
       standards. Those standards require that we plan and perform the audit to
       obtain reasonable assurance about whether the financial statements are
       free of material misstatement. An audit includes examining, on a test
       basis, evidence supporting the amounts and disclosures in the financial
       statements. An audit also includes assessing the accounting principles
       used and significant estimates made by management, as well as evaluating
       the overall financial statement presentation. We believe that our audits
       provide a reasonable basis for our opinion.

       In our opinion, the financial statements referred to above present
       fairly, in all material respects, the financial position of D.G.
       Jewellery of Canada Ltd. and subsidiaries as of December 31, 1997 and
       1996 and the results of their operations and their cash flows for the
       years ended December 31, 1997 and 1996, in conformity with generally
       accepted accounting principles in the United States of America.




                                                          [illegible Sig]
       Toronto, Ontario
       March 5, 1998                                      Chartered Accountants



       1167 Caledonia Road
       Toronto, Ontario M6A281
       Tel: 416 785 5353
       Fax: 436 785 5663


                                      F-1


<PAGE>


D.G. JEWELLERY OF CANADA LTD.
Consolidated Balance Sheet
As of December 31
(Amounts expressed in US dollars)

<TABLE>
<CAPTION>
                                                                                      1997                1996

                                                                                        $                   $
                                                        ASSETS
       CURRENT ASSETS

<S>    <C>                                                                      <C>                  <C>      
           Accounts receivable (notes 3, 8 and 10)                              17,197,875           8,871,980
           Inventory (notes 4, 8 and 10)                                        12,852,760           6,779,338
           Cash surrender value of life insurance (note 5)                         476,445                -
           Prepaid expenses and sundry assets                                      169,696              67,267
                                                                                ----------          ----------


                                                                                30,696,776          15,718,585

       DEFERRED COSTS OF PUBLIC ISSUE                                                 -                131,777

       PROPERTY, PLANT AND EQUIPMENT (notes 6, 8 and 10)                         1,888,148             744,661

       GOODWILL (note 7)                                                         1,336,609             177,963
                                                                                ----------          ----------




                                                                                33,921,533          16,772,986
                                                                                ==========          ==========
</TABLE>




APPROVED ON BEHALF OF THE BOARD

_______________________Director

_______________________Director


                                      F-2


<PAGE>


D.G. JEWELLERY OF CANADA LTD.
Consolidated Balance Sheet
As of December 31
(Amounts expressed in US dollars)

<TABLE>
<CAPTION>
                                                                                      1997                1996

                                                                                        $                   $
                                                      LIABILITIES
       CURRENT LIABILITIES

<S>    <C>                                                                      <C>                  <C>      
           Bank indebtedness (note 8)                                           12,120,832           8,321,794
           Accounts payable and accrued expenses (note 9)                        3,891,394           1,982,423
           Income taxes payable                                                  1,008,548             593,402
           Current portion of loans payable (note 10)                            3,441,109           1,195,936
           Class B redeemable special stock (note 11)                                 -                 81,067
           Other loan                                                                 -                226,989
                                                                                ----------          ----------


                                                                                20,461,883          12,401,611

       LOANS PAYABLE (note 10)                                                   2,864,997           1,080,838

       DEFERRED INCOME TAXES (note 12)                                                -                127,138
                                                                                ----------          ----------


                                                                                23,326,880          13,609,587
                                                                                ----------          ----------


       COMMITMENTS AND CONTINGENCIES (notes 16 and 17)

                                                 STOCKHOLDERS' EQUITY

       COMMON STOCK (note 13)                                                    6,700,827                  84

       CUMULATIVE TRANSLATION ADJUSTMENTS                                        (359,434)            (44,711)

       RETAINED EARNINGS                                                         4,253,260           3,208,026
                                                                                ----------          ----------

                                                                                10,594,653           3,163,399
                                                                                ----------          ----------

                                                                                33,921,533          16,772,986
                                                                                ==========          ==========
</TABLE>



   The accompanying notes are an integral part of these financial statements.



                                      F-3
<PAGE>

D.G. JEWELLERY OF CANADA LTD.
Consolidated Statement of Income
For the years ended December 31
(Amounts expressed in US dollars)

<TABLE>
<CAPTION>
                                                                                      1997                1996

<S>    <C>                                                                      <C>                 <C>
                                                                                        $                   $

       Net sales                                                                22,127,825          14,181,540

       Cost of sales                                                            15,677,870          11,374,603
                                                                                ----------          ----------

       Gross profit                                                              6,449,955           2,806,937

       Operating expenses
           Selling                                                               1,188,308             588,809
           General and administrative                                            2,463,242             541,456
                                                                                ----------          ----------

                                                                                 3,651,550           1,130,265
                                                                                ----------          ----------

       Operating income                                                          2,798,405           1,676,672
                                                                                ----------          ----------

       Interest expenses                                                           822,215             796,412
       Other expenses                                                              389,533             127,086
                                                                                ----------          ----------

                                                                                 1,211,748             923,498
                                                                                ----------          ----------

       Income before income taxes                                                1,586,657             753,174

       Provision for income taxes (note 12)                                        541,423             296,146
                                                                                ----------          ----------

       Net income                                                                1,045,234             457,028
                                                                                ==========          ==========

       Earnings per common share                                                      0.22                0.11
                                                                                ==========          ==========

       Earnings per common share assuming dilution                                    0.22                0.11
                                                                                ==========          ==========
</TABLE>



   The accompanying notes are an integral part of these financial statements.


                                      F-4
<PAGE>



D.G. JEWELLERY OF CANADA LTD.
Consolidated Statement of Cash Flows
For the years ended December 31
(Amounts expressed in US dollars)

<TABLE>
<CAPTION>
                                                                                      1997                1996

                                                                                        $                   $

<S>    <C>                                                                    <C>                  <C>    
       Cash flows from operating activities:
           Net income                                                            1,045,234             457,028
                                                                              ------------         -----------

           Adjustments to reconcile net income to 
           net cash (used in) provided by operating
           activities:
                Amortization                                                       389,603             197,054
                Increase in accounts receivable                                (8,325,895)         (1,848,027)
                Increase in inventory                                          (6,073,422)         (1,948,113)
                Increase in cash surrender value
                   of life insurance                                             (476,445)               -
                Increase in prepaid expenses
                   and sundry assets                                             (102,429)            (64,421)
                Increase in accounts payable
                   and accrued expenses                                          1,908,971           1,186,529
                Increase in income taxes payable                                   415,146             300,940
                Decrease in deferred income taxes                                     -                (5,182)
                                                                              ------------         -----------

                Total adjustments                                             (12,264,471)         (2,181,220)
                                                                              ------------         -----------

                Net cash used in operating activities                         (11,219,237)         (1,724,192)
                                                                              ------------         -----------

           Cash flows from investing activities:
                Purchases of property, plant and
                   equipment                                                   (1,491,736)           (274,845)
                Purchase of goodwill                                           (1,200,000)               -
                Proceeds from disposal of property,
                   plant and equipment                                               -                  10,935
                                                                              ------------         -----------

                Net cash used in investing activities                          (2,691,736)           (263,910)
                                                                              ------------         -----------

           Cash flows from financing activities:
                Proceeds from/(repayment of)
                   loans payable                                                 3,802,343           (303,488)
                Issuance of capital stock                                        6,705,382               -
                Deferred public issue costs                                           -              (131,777)
                Redemption of capital stock                                       (81,067)               -
                                                                              ------------         -----------

                Net cash provided by (used in) financing activities             10,426,658           (435,265)
                                                                              ------------         -----------
</TABLE>


                                      F-5
<PAGE>



D.G. JEWELLERY OF CANADA LTD.
Consolidated Statement of Cash Flows
For the years ended December 31
(Amounts expressed in US dollars)

<TABLE>
<CAPTION>
                                                                                      1997                1996

                                                                                        $                   $

<S>    <C>                                                                    <C>                  <C>    
       Effect of foreign currency exchange
           rate changes                                                          (314,723)             20,966
                                                                              -----------         -----------

       Net increase in bank indebtedness and
           cash equivalents                                                    (3,799,038)         (2,402,401)
       Bank indebtedness and cash equivalents
           -  Beginning of year                                                (8,321,794)         (5,919,393)
                                                                              -----------          ---------- 

           -  End of year                                                     (12,120,832)         (8,321,794)
                                                                              ===========          ========== 

       Interest paid                                                              822,215             827,864
                                                                              ===========          ========== 

       Income taxes paid                                                           43,000                -
                                                                              ===========          ========== 
</TABLE>



   The accompanying notes are an integral part of these financial statements.



                                      F-6
<PAGE>



D.G. JEWELLERY OF CANADA LTD.
Consolidated Statement of Stockholders' Equity
For the years ended December 31, 1997 and 1996
(Amounts expressed in US dollars)


<TABLE>
<CAPTION>
                                                 Common      Issued and
                                                  Stock     Outstanding                             Cumulative
                                              Number of          Common                 Retained   Translation
                                                 Shares        Warrants     Amount      Earnings   Adjustments
                                                                                $             $             $

<S>    <C>                                    <C>             <C>        <C>           <C>            <C>     
       Balance as of December 31, 1995        3,900,000            -            84     2,750,998      (65,677)

       Foreign currency translation                -               -          -             -           20,966

       Net income for the year                     -               -          -          457,028          -
                                              ---------       ---------  ---------     ---------     -------- 

       Balance as of December 31, 1996        3,900,000            -            84     3,208,026      (44,711)

       Common stock issued (note 13)          1,265,000       1,265,000  6,700,743          -             -

       Foreign currency translation                -               -          -             -        (314,723)

       Net income for the year                     -               -          -        1,045,234          -
                                              ---------       ---------  ---------     ---------     -------- 

       Balance as at December 31, 1997        5,165,000       1,265,000  6,700,827     4,253,260     (359,434)
                                              =========       =========  =========     =========     ======== 
</TABLE>




   The accompanying notes are an integral part of these financial statements.



                                      F-7
<PAGE>



D.G. JEWELLERY OF CANADA LTD.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(Amounts expressed in US dollars)



       1.  BASIS OF CONSOLIDATED FINANCIAL STATEMENTS PRESENTATION

           These financial statements consolidate, using the purchase method,
           the accounts of the company and its two wholly-owned subsidiaries,
           Diamonair, Inc. and Aviv, Inc. All material intercompany accounts
           have been eliminated. Consolidation commenced with the effective
           dates of acquisition of the operations of the subsidiary companies.

           The year ends of the subsidiaries are December 31. Acquisition of the
           operations of the subsidiaries was effected by the purchase of the
           assets and trade name of Diamonair, Inc. from a third party,
           effective November 21, 1997, and by the purchase of the assets and
           trade name of Aviv, Inc. from a third party, effective June 1, 1997.
           The purchases were effected through the company's wholly-owned
           subsidiaries, Diamonair, Inc. and Aviv, Inc. and the final documents
           were signed on November 21, 1997 and February 10, 1998 respectively.

           Total assets acquired and total liabilities assumed by D.G. Jewellery
           of Canada Ltd. as a result of these acquisitions is as follows:

<TABLE>
<CAPTION>
                                                                                Aviv, Inc.     Diamonair, Inc.
                                                                                ----------     ---------------
                                                                                        $                   $

<S>        <C>                                                                   <C>                 <C>      
           Total assets (exclusive of goodwill)                                  4,286,000           4,549,000
           Goodwill                                                                   -              1,200,000

</TABLE>
           The total amount of consideration given by D.G. Jewellery of Canada
           Ltd. as a result of these acquisitions is as follows:

<TABLE>
<CAPTION>
                                                                                Aviv, Inc.     Diamonair, Inc.
                                                                                ----------     ---------------
                                                                                        $                   $

<S>        <C>                                                                   <C>                <C> 
           Cash                                                                       -             5,749,000
           Accounts payable                                                        988,500               -
           Loans payable (as described in note 10)                               3,297,500               -
</TABLE>


       2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

           i)   Principal Activities

                The company was incorporated in Canada on October 18, 1979. The
                company is principally engaged in the production and trading of
                jewellery in Canada and the United States of America.

           ii)  Bank indebtedness and Cash Equivalents

                Bank indebtedness and cash equivalents include cash on hand,
                amounts due to banks, and any other highly liquid investments
                purchased with a maturity of three months or less. The carrying
                amount approximates fair value because of the short maturity of
                those instruments.




                                      F-8
<PAGE>



D.G. JEWELLERY OF CANADA LTD.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(Amounts expressed in US dollars)


       2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)

          iii)  Other Financial Instruments

                The carrying amount of the company's other financial instruments
                approximates fair value because of the short maturity of these
                instruments or the current nature of interest rates borne by
                these instruments.

          iv)   Long-term Financial Instruments

                The fair value of each of the company's long-term financial
                assets and debt instruments is based on the amount of future
                cash flows associated with each instrument discounted using an
                estimate of what the company's current borrowing rate for
                similar instruments of comparable maturity would be.

          v)    Accounts Receivable and Accounts Payable

                In certain instances, the company's practice is to sell to and
                purchase from the same entities. In such circumstances, on a
                periodic basis, the payable is set-off against the receivable as
                payment. Until such time as such a set-off occurs, the
                respective receivable and payable amounts are reported on a
                gross basis. At year end, amounts owing to the company from
                customers who participate in this practice was approximately
                $100,000 ($4.2 million as at December 31, 1996). Of this amount,
                $35,000 ($1.5 million as at December 31, 1996) was owed to these
                customers as at December 31, 1997.

          vi)   Inventory

                Raw materials and work-in-process are valued at the lower of
                cost (first-in, first-out basis) or market.

                Finished goods are valued at the lower of cost or market. Cost
                is calculated using selling price less normal gross margin.

          vii)  Depreciation

                Depreciation is provided over the estimated useful lives of the
                assets, principally using the declining balance method.

          viii) Goodwill

                Goodwill is the excess of cost over the value of tangible assets
                acquired. It is amortized on the straight-line basis over 25 to
                40 years.

          ix)   Sales

                Sales represents the invoiced value of goods supplied to
                customers. Sales are recognized upon delivery of goods and
                passage of title to customers.


                                      F-9
<PAGE>



D.G. JEWELLERY OF CANADA LTD.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(Amounts expressed in US dollars)


       2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)

          x)    Income taxes

                The company accounts for income tax under the provisions of
                Statement of Financial Accounting Standards No. 109, which
                requires recognition of deferred tax assets and liabilities for
                the expected future tax consequences of events that have been
                included in the financial statements or tax returns. Deferred
                income taxes are provided using the liability method. Under the
                liability method, deferred income taxes are recognized for all
                significant temporary differences between the tax and financial
                statement bases of assets and liabilities.

          xi)   Accounting Changes

                On January 1, 1996, the company adopted the provision of SFAS
                No. 121, Accounting for the Impairment of Long-Lived Assets and
                for Long-Lived Assets to be Disposed Of. SFAS No. 121 requires
                that long-lived assets to be held and used by an entity be
                reviewed for impairment whenever events or changes in
                circumstances indicate that the carrying amount of an asset may
                not be recoverable. SFAS No. 121 is effective for financial
                statements for fiscal years beginning after December 15, 1995.
                Adoption of SFAS No. 121 did not have a material impact on the
                company's result of operations.

                In December 1995, SFAS No. 123, Accounting for Stock-Based
                Compensation, was issued. It introduced the use of a fair
                value-based method of accounting f0r stock-based compensation.
                It encourages, but does not require, companies to recognize
                compensation expense for stock-based compensation to employees
                based on the new fair value accounting rules. Companies that
                choose not to adopt the new rules will continue to apply the
                existing accounting rules contained in Accounting Principles
                Board Opinion No. 25, Accounting for Stock Issued to Employees.
                However, SFAS No. 123 requires companies that choose not to
                adopt the new fair value accounting rules to disclose pro forma
                net income and earnings per share under the new method. SFAS No.
                123 is effective for financial statements for fiscal years
                beginning after December 15, 1995. The company has adopted the
                disclosure provisions of SFAS No. 123.

          xii)  Foreign Currency Translation

                The translation of the financial statements from Canadian
                dollars ("CDN $") into United States dollars is performed for
                the convenience of the reader. Balance sheet accounts are
                translated using closing exchange rates in effect at the balance
                sheet date and income and expense accounts are translated using
                an average exchange rate prevailing during each reporting
                period. No representation is made that the Canadian dollar
                amounts could have been, or could be, converted into United
                States dollars at the rates on the respective dates and or at
                any other certain rates. Adjustments resulting from the
                translation are included in the cumulative translation
                adjustments in stockholders' equity.



                                      F-10
<PAGE>



D.G. JEWELLERY OF CANADA LTD.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(Amounts expressed in US dollars)


       2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)

          xiii) Net Income Per Weighted Average Common Stock

                Net income per common stock is computed by dividing net income
                for the year by the weighted average number of common stock
                outstanding during the year.

          xiv)  Use of Estimates

                The preparation of financial statements in conformity with
                generally accepted accounting principals in the United States of
                America requires management to make estimates and assumptions
                that affect certain reported amounts of assets and liabilities
                and disclosures of contingent assets and liabilities at the date
                of the financial statements and the reported amounts of revenues
                and expenses during the reporting period. Actual results could
                differ from those estimates.


       3. ACCOUNTS RECEIVABLE

<TABLE>
<CAPTION>
                                                                                     1997                 1996

                                                                                      $                    $

<S>       <C>                                                                 <C>                   <C>      
          Accounts receivable                                                 17,690,675            8,972,747
          Less:  Allowance for doubtful accounts                                 492,800              100,767
                                                                              ----------            ---------

          Accounts receivable, net                                            17,197,875            8,871,980
                                                                              ==========            =========
</TABLE>


       4. INVENTORY

          Inventory comprised of the following:

<TABLE>
<CAPTION>
                                                                                    1997                 1996

                                                                                      $                    $

<S>       <C>                                                                 <C>                   <C>      
          Raw materials                                                        2,244,686            1,526,385
          Work-in-process                                                        590,778              248,792
          Finished goods                                                      10,017,296            5,004,161
                                                                              ----------            ---------

                                                                              12,852,760            6,779,338
                                                                              ==========            =========
</TABLE>


       5. CASH SURRENDER VALUE OF LIFE INSURANCE

          The cash surrender value of life insurance represents the value of
          life insurance policies of the former directors of Aviv, Inc.
          Subsequent to December 31, 1997, the majority of the policies were
          redeemed for proceeds aggregating $393,285.




                                      F-11
<PAGE>



D.G. JEWELLERY OF CANADA LTD.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(Amounts expressed in US dollars)


       6. PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                                    1997                 1996

                                                                                      $                    $

<S>       <C>                                                                  <C>                  <C>      
          Office equipment                                                       327,565              165,569
          Machinery and manufacturing equipment                                1,025,183              268,561
          Computer equipment and software                                        189,653              140,118
          Automobile                                                               6,000                 -
          Leasehold improvements                                                 340,906              208,459
          Waxes and moulds                                                     1,466,264            1,081,129
                                                                               ---------            ---------

                  Cost                                                         3,355,571            1,863,836
                                                                               ---------            ---------


          Less:   Accumulated amortization
                  Office equipment                                               130,512              110,960
                  Machinery and manufacturing equipment                          265,913              169,440
                  Computer equipment and software                                121,260              111,426
                  Automobile                                                        -                    -
                  Leasehold improvements                                          68,795               37,794
                  Waxes and moulds                                               880,943              689,555
                                                                               ---------            ---------

                                                                               1,467,423            1,119,175
                                                                               ---------            ---------

          Net                                                                  1,888,148              744,661
                                                                               =========            =========
</TABLE>


       7. GOODWILL

<TABLE>
<CAPTION>
                                                                                    1997                 1996

                                                                                      $                    $

<S>       <C>                                                                  <C>                    <C>    
          Cost                                                                 1,483,848              283,848
          Less:  Accumulated amortization                                        147,239              105,885
                                                                               ---------            ---------


          Net                                                                  1,336,609              177,963
                                                                               =========            =========

</TABLE>


                                      F-12
<PAGE>



D.G. JEWELLERY OF CANADA LTD.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(Amounts expressed in US dollars)


       8. BANK INDEBTEDNESS

          The bank loan bears interest at the bank's prime lending
          rate plus 1/2% per annum (8.0% at December 31, 1997 and
          5.25% at December 31, 1996) with interest payable monthly.
          The weighted average interest rates incurred on the bank
          loan were 5.42% and 6.58% per annum for the years ended
          December 31, 1997 and December 31, 1996, respectively. As
          security, the company has provided a general assignment of
          accounts receivable, a general security agreement
          constituting a first charge over all present and future
          personal property of the company and an assignment of key
          man life insurance of a director in the amount of $704,225
          payable to the bank as of December 31, 1997 and $734,107 as
          of December 31, 1996. The available line of credit under the
          bank loan amounted to $16,549,000 as at December 31, 1997.

          The company also provided to the bank an assignment of
          accounts receivable, and a general security agreement
          constituting a first charge over all present and future
          property with UCC filings of security in the appropriate
          jurisdictions of its subsidiary companies, as well as
          hypothecation of all the shares of these subsidiaries. (See
          note 1). Furthermore, an affiliated company (owned wholly by
          the company's majority stockholders) has provided a general
          security agreement constituting a first charge over its
          present and future property and a corporate guarantee
          secured by a collateral mortgage providing a second fixed
          charge over its property. Furthermore, the company also
          provided to the bank an assignment of all security taken by
          the company from a related party, Diamante Fine Jewellery
          Limited, over which it has effective control. Certain
          stockholders have provided a postponement of their loans to
          the company in an amount of $1,400,000.

          The facility contains covenants specifying minimum and
          maximum selected financial ratios. The agreement contains
          restrictions on changes in ownership and line of business,
          on further encumbrances of assets and on the guarantees and
          other contingent liabilities.


       9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

<TABLE>
<CAPTION>
                                                                                    1997                 1996

                                                                                      $                    $

<S>       <C>                                                                   <C>                 <C>      
          Trade payables                                                        3,240,877           1,582,701
          Accrued expenses                                                        650,517             399,722
                                                                                ---------           ---------

                                                                                3,891,394           1,982,423
                                                                                =========           =========
</TABLE>



                                      F-13
<PAGE>



D.G. JEWELLERY OF CANADA LTD.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(Amounts expressed in US dollars)




      10. LOANS PAYABLE

<TABLE>
<CAPTION>
                                                                                     1997                 1996

                                                                                       $                    $
<S>       <C>  <C>                                                              <C>                 <C>      
          a)   Loans from stockholders

               Loans are secured by a general assignment of the
               company's assets subject to the prior encumbrances
               disclosed in note 8, $1,400,000 subordinated to the
               company's banker and bear interest at 10% (9% for 1996)          1,965,148           1,080,838

          b)   Loan is provided by the company's banker, subject to
               the encumbrances disclosed in note 8, bearing interest
               at the prime lending rate of the company's bank plus 1%,
               repayable in 36 equal monthly installments plus interest
               with the final payment due in November 2000                      1,369,327                -

          c)   Loan is provided by the bankers of Aviv, Inc., with no
               specific terms of repayment. This loan was repaid in full
               in February 1998                                                 2,971,631                -

          d)   Repaid during the year                                                -              1,195,936
                                                                                ---------           ---------

                                                                                6,306,106           2,276,774

               Less:   Current portion                                          3,441,109           1,195,936
                                                                                ---------           ---------

                                                                                2,864,997           1,080,838
                                                                                =========           =========


               Aggregate maturities of loans payable are as follows:
                                                                                    1997                 1996

                                                                                      $                    $

               Repayable during the following periods:
                   Within one year                                              3,441,109           1,195,936
                   Over one year but not exceeding two years                      468,690           1,080,838
                                                                                ---------           ---------

                                                                                3,909,799           2,276,774
                                                                                =========           =========
</TABLE>

               The weighted average interest rates per annum incurred
               were 9.5% for the year ended December 31, 1997 and
               12.83% for the year ended December 31, 1996.



                                 F-14
<PAGE>



D.G. JEWELLERY OF CANADA LTD.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(Amounts expressed in US dollars)


      11. CLASS B REDEEMABLE SPECIAL STOCK

<TABLE>
<CAPTION>
                                                                                      1997                1996

                                                                                        $                   $

<S>       <C>                                                                     <C>                 <C>
          Redeemable Special Stock

          11,111  Class B special stock                                              -                 81,067
          Less:  Current portion                                                     -                 81,067
                                                                                  =======             =======

                                                                                     -                   -
                                                                                  =======             =======
</TABLE>


          These stock were redeemed during 1997.


      12. INCOME TAXES

          a) Significant components of provision for income taxes are:

<TABLE>
<CAPTION>
                                                                                     1997                1996

                                                                                       $                   $

<S>            <C>                                                                <C>                 <C>
               Current                                                            541,423             301,328

               Deferred                                                              -                (5,182)
                                                                                  -------             -------

                                                                                  541,423             296,146
                                                                                  =======             =======
</TABLE>


          b)   Deferred income taxes represented the tax charges
               derived primarily from temporary differences between
               amortization of property, plant and equipment and
               amortization of goodwill charged to operations and
               amounts deducted from taxable income. As a consequence
               of the issuance of common stock during the year, issue
               expenses were incurred which are deductible for tax
               purposes over five years. The deferred income taxes at
               December 31, 1996 has been applied to the issue
               expenses (note 13).





                                 F-15
<PAGE>



D.G. JEWELLERY OF CANADA LTD.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(Amounts expressed in US dollars)




      13. CAPITAL STOCK

          a)   D.G. Jewellery of Canada Ltd.

                   Authorized

                   An unlimited number of common stock

                   Issued

<TABLE>
<CAPTION>
                                                                                          1997           1996

                                                                                            $              $
  
<S>                <C>                                                               <C>                   <C>
                   5,165,000 Common stock (3,900,000 in 1996)                        6,587,602             84
                   1,265,000 Warrants                                                  113,225             -
                                                                                     ---------             --

                                                                                     6,700,827             84
                                                                                     =========             ==
</TABLE>


          b) All authorized classes of capital stock, other than common stock,
             were eliminated during 1997.

          c) During the year, the company issued 1,265,000 common shares and
             1,265,000 warrants as follows:

<TABLE>
<CAPTION>
<S>            <C>                                                                                 <C>       
               Proceeds received from issuance                                                     $7,716,500

               Issue expenses (net of income taxes)                                                 1,015,757
                                                                                                   ----------

               Net proceeds                                                                        $6,700,743
                                                                                                   ==========
</TABLE>

               Net proceeds include the non-cash items of deferred costs of
               public issue and deferred income tax recoveries.

          d)   As at December 31, 1997, the company had warrants outstanding to
               purchase 1,265,000 shares of the common stock at $6.25 per
               share. The warrants expire in 2001.

          e)   In December, 1996, the board of directors and stockholders
               adopted the 1996 D.G. Jewellery of Canada Ltd. Stock Option Plan
               (the "1996 Plan"), pursuant to which 500,000 shares of Common
               Stock are provided for issuance. The 1996 Plan is administered
               by the board of directors.

               The 1996 Plan is for a period of ten years, expiring on December
               15, 2006. Options may be granted to officers, directors,
               consultants, key employees, advisors and similar parties who
               provide their skills and expertise to the Company. Options
               granted under the 1996 Plan may be exercisable for up to ten
               years, may require vesting, and shall be at an exercise price
               all as determined by the board.

               The exercise price of an option may not be less than the fair
               market value per share of Common Stock on the date the option is
               granted in order to receive certain tax benefits under the
               Income Tax Act of Canada (the "ITA"). The exercise price of all
               future options will be at least 85% of the fair market value of
               the Common Stock on the date of granting of the options.



                                      F-16
<PAGE>



D.G. JEWELLERY OF CANADA LTD.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(Amounts expressed in US dollars)


      13. CAPITAL STOCK (cont'd)

          e)   (cont'd)

               Any unexercised options that expire or that terminate upon an
               employee's ceasing to be employed by the Company become
               available again for issuance under the 1996 Plan.

               The 1996 Plan may be terminated or amended at any time by the
               board of directors, except that the number of shares of Common
               Stock reserved for issuance upon the exercise of options granted
               under the 1996 Plan may not be increased without the consent of
               the stockholders of the Company.

               The Board has granted 172,500 Options to date under the 1996
               Plan to 20 persons, including officers, directors and key
               employees. The options are exercisable at $1.38 per share for
               five years expiring February 9, 2002.

               These options were not exercisable until August 20, 1997 at
               which time they were able to be exercised up to 25% of the
               amount of shares issueable under the Options, and an additional
               25% each six month anniversary date thereafter.

               None of these options have been exercised to date.

          f)   The underwriters for the issuance of the common shares in 1997
               hold options to acquire 110,000 common shares at $9.90 and
               110,000 warrants at 16.5(cent). This option expires in 2002.


      14. Earnings Per Common Share

          The company has adopted Statement No. 128, Earnings Per Share, which
          requires presentation, in the consolidated statement of income, of
          both basic and diluted earnings per share.

<TABLE>
<CAPTION>
                                                                                          1997           1996

                                                                                            $              $

<S>       <C>                                                                        <C>            <C>      
          Average common stock outstanding                                           4,743,333      3,900,000
          Average common shares issuable                                                62,137           -
                                                                                     ---------      ---------

          Average common stock outstanding assuming dilution                         4,805,470      3,900,000
                                                                                     =========      =========
</TABLE>


          The outstanding warrants and underwriters' options were not included
          in the computation of earnings per common share assuming dilution
          because the exercise prices were greater than the average market
          price of the common shares.



                                      F-17
<PAGE>



D.G. JEWELLERY OF CANADA LTD.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(Amounts expressed in US dollars)


      15. RELATED PARTY TRANSACTIONS

<TABLE>
<CAPTION>
                                                                                           1997           1996

                                                                                             $              $

<S>       <C>                                                                          <C>             <C>   
          Rent paid to a company owned by stockholders                                 100,605         92,067
          Interest paid to stockholders                                                217,724        293,578
</TABLE>

          (See additional related party transactions disclosure in notes 10 and
17).


      16. COMMITMENTS

          The company has operating leases for leasehold improvements and
          premises which extend through January 31, 2005. Rental and leasing
          expenses for the year ended December 31, 1997 under these leases were
          $169,500.

          Future minimum rental payments as of December 31, 1997 under
          agreements classified as operating leases with non-cancellable terms
          in excess of one year, are as follows:

          Payable during the following periods:
<TABLE>
<CAPTION>
<S>            <C>                                                                              <C>          
               Within one year                                                                  $     209,361
               Over one year but not exceeding two years                                              215,185
               Over two years but not exceeding three years                                           183,971
               Over three years but not exceeding four years                                          125,158
               Over four years but not exceeding five years                                           133,548
               Thereafter                                                                             452,721
                                                                                                -------------


                                                                                                $   1,319,944
                                                                                                =============
</TABLE>



      17. CONTINGENCIES

          The company is contingently liable under contested lawsuits amounting
          to approximately $1,760,000. In the opinion of management there is no
          merit for these claims and the company has filed counter claims. No
          provision has been recorded in the accounts for possible losses or
          gains. Should any expenditures be incurred by the company for the
          resolution of these lawsuits, they will be charged to the operations
          of the year in which such expenditures are incurred.

          The company is contingently liable to a mortgage corporation for the
          guarantee of a mortgage in the amount of approximately $575,000 given
          to a party related to the major stockholders of the company.





                                      F-18
<PAGE>



D.G. JEWELLERY OF CANADA LTD.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(Amounts expressed in US dollars)




       18.SEGMENTED INFORMATION

          a)   Sales to Major Customers

<TABLE>
<CAPTION>
                                                                                          1997           1996

<S>            <C>                                                                 <C>            <C>          
               Sales to major customers                                            $18,042,967    $ 2,659,931
               Percentage of total sales                                                   82%            19%

               Accounts receivable due from major customers                        $14,446,215    $ 2,038,420
               Percentage of total accounts receivable                                     84%            28%

               Ongoing credit evaluations of each customer's financial
               condition are performed and, generally, no collateral is
               required. The company maintains reserves for potential credit
               losses and such losses, in the aggregate, have not exceeded
               management's expectations.
</TABLE>

          b)   Sales by Geographic Area
<TABLE>
<CAPTION>
                                                                                          1997           1996

                                                                                            $              $

<S>            <C>                                                                 <C>            <C>       
               Canada                                                                7,848,152     10,991,826
               United States of America                                             13,909,306      3,093,148
               Other                                                                   325,478           -
                                                                                   -----------    -----------

                                                                                    22,082,936     14,084,974
                                                                                   ===========    ===========
</TABLE>


          c)   Net Income by Geographic Area

               The company's accounting records do not readily provide
               information on net income by geographic area. Management is of
               the opinion that the proportion of net income based principally
               on sales, presented below, would fairly present the results of
               operations by geographic area.

<TABLE>
<CAPTION>
                                                                                          1997           1996

                                                                                            $              $

<S>            <C>                                                                <C>            <C>    
               Canada                                                                  371,458        356,660
               United States of America                                                658,371        100,368
               Other                                                                    15,405           -
                                                                                   -----------    -----------

                                                                                     1,045,234        457,028
                                                                                   ===========    ===========
</TABLE>



                                      F-19
<PAGE>



D.G. JEWELLERY OF CANADA LTD.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(Amounts expressed in US dollars)


      18. SEGMENTED INFORMATION (cont'd)

          d)   Identifiable Assets by Geographic Area

<TABLE>
<CAPTION>
                                                                                          1997           1996

                                                                                            $              $

<S>            <C>                                                                 <C>            <C>      
               Canada                                                                2,200,171      1,863,836
               United States of America                                              1,155,400           -
                                                                                   -----------    -----------

                                                                                     3,355,571      1,863,836
                                                                                   ===========    ===========


          e)   Purchases From Major Suppliers
                                                                                          1997           1996

               Purchases from major suppliers                                      $ 6,928,865    $ 4,985,269
               Percentage of total purchases                                               48%            45%

               Accounts payable due to major suppliers                             $ 1,815,001    $   663,705
               Percentage of total suppliers                                               70%            26%
</TABLE>



                                      F-20
<PAGE>



D.G. JEWELLERY OF CANADA LTD.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(Amounts expressed in US dollars)


      19. OTHER SUPPLEMENTAL INFORMATION

          The following items were included in the statements of income:

<TABLE>
<CAPTION>
                                                                                          1997           1996

                                                                                            $              $

<S>       <C>                                                                          <C>            <C>    
          Amortization of property, plant and equipment                                348,248        184,838
          Amortization of goodwill                                                      41,355         12,216
                                                                                       -------        -------

                                                                                       389,603        197,054
                                                                                       =======        =======

          Operating lease rentals for
               -  rented premises                                                      187,075        141,104
               -  leasehold improvements                                                68,893         75,363
                                                                                       -------        -------

                                                                                       255,968        216,467
                                                                                       =======        =======

          Interest expense on
               -  bank indebtedness                                                    604,490        529,856
               -  loans payable                                                        217,725        293,578
               -  other                                                                     -           4,430
                                                                                       -------        -------

                                                                                       822,215        827,864
                                                                                       =======        =======
</TABLE>


      20. INVESTMENT TAX CREDITS

          As of December 31, 1997 and December 31, 1996 the company has made
          claims to Revenue Canada for research and research development
          expenditures totalling $150,000. The related investment tax credits
          refundable as December 31, 1997, which is approximately 35 cents per
          dollar of expenditure, have not been recognized for accounting
          purposes, and will be accounted for as reduction of the related
          current or capital expenditure when they are approved by Revenue
          Canada.


      21. COMPARATIVE FIGURES

          Certain figures in the December 31, 1996 consolidated financial
          statements have been reclassified to conform with the basis of
          presentation used in 1997.




                                      F-21
<PAGE>



(b).                            Exhibit Index


          Exhibit
          Number       Description
          ------       -----------

          3(a)         Articles of Incorporation+

          (b)          By-laws of the Company+

          4(a)         Form of Common Stock Certificate of the Company+

          (b)          Form of Redeemable Common Stock Purchase Warrant+

          (c)          Form of Underwriters' Options+

          (d)          Form of Warrant Agreement between the Company, American
                       Stock Transfer & Trust Co. and Joseph Dillon & Company,
                       Inc.+

          5(a)         Opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP

          10(a)        Lease between 1013418 Ontario Inc., In Trust and the
                       Company dated February 1, 1995+

          (b)          Operating Credit Line between the Company and The Bank of
                       Nova Scotia dated July 15, 1996+

          (c)          Security Agreement between the Company and The Bank of
                       Nova Scotia dated November 21, 1994+

          (d)          General Assignment by the Company to The Bank of Nova
                       Scotia dated November 21, 1994+

          (e)          Assignment of keyman life insurance by the Company to The
                       Bank of Nova Scotia dated November 29, 1994+

          (f)          Priority Agreement between the Company, The Bank of Nova
                       Scotia, Laurbrad Holdings Limited and Jack Berkovits
                       dated December 1, 1995+

          (g)          Priority Agreement between The Bank of Nova Scotia, Jack
                       Berkovits and Laurbrad Holdings Limited dated December 1,
                       1995+


                                      F-22
<PAGE>


          (h)          Priority Agreement between the Company, The Bank of Nova
                       Scotia and Jack Berkovits dated December 1, 1995+

          (i)          Pledge and Assignment of Security Interest held by the
                       Company in Diamante Fine Jewellery Limited and The Bank
                       of Nova Scotia dated December 1, 1995 including General
                       Security Agreement from Diamante Fine Jewellery Limited
                       to the Company dated May 11, 1995.+

          (j)          Guarantee of payment by 1013418 Ontario, Inc. to The Bank
                       of Nova Scotia dated November 21, 1994+

          (k)          Collateral Mortgage from 1013418 Ontario, Inc. to The
                       Bank of Nova Scotia dated November 30, 1994+

          (l)          Loan Agreement between the Company and Jack Berkovits
                       dated May 31, 1995+

          (m)          Promissory Note of the Company to Jack Berkovits dated
                       May 31, 1995+

          (n)          Security Agreement granted by the Company to Jack
                       Berkovits dated May 31, 1995+

          (o)          Loan Agreement between the Company, Jack Berkovits and
                       Laurbrad Holdings Limited dated November 30, 1995+

          (p)          Loan Agreement between the Company and Jack Berkovits
                       dated November 30, 1995+

          (q)          Promissory Note of the Company to Jack Berkovits dated
                       November 30, 1995+

          (r)          Guarantee by the Company of Diamante Fine Jewellery
                       Limited Cookstown Mall Lease dated March 24, 1995+

          (s)          Guarantee by the Company of Diamante Fine Jewellery
                       Limited St. Jacobs Lease dated July 14, 1993+

          (t)          Promissory Note of the Company to Sherfam, Inc. dated
                       April 1, 1996+

          (u)          Equipment lease between the Company and The Bank of Nova
                       Scotia(three equipment leases substantially similar)
                       dated April 29, 1994+

          (v)          General Security Agreement from Diamante Fine Jewellery
                       Limited to The Bank of Nova Scotia dated August 4, 1995+

          (w)          Diamante Fine Jewellery Limited Guarantee of the
                       Company's Bank Financing dated August 1, 1995+

          (x)          Agreement between the Company and Diamante Fine Jewellery
                       Limited dated May 3, 1995+

          (y)          Agreement between Rent-A-Center and the Company dated
                       November 20, 1996, as clarified by letter dated December
                       13, 1996+



                                      F-23
<PAGE>

          (a)(a)       1996 Stock Option Plan of the Company+

          (a)(b)       Form of Stock Option Certificate under 1996 Stock Option
                       Plan+

          (a)(c)       Form of Lock-Up Letter by Jack Berkovits, the Berkovits
                       Family Trust and Mr. Berkovits' two sons+

          (a)(d)       Employment Agreement between the Company and Jack
                       Berkovits dated December 20, 1996, as amended+

          (a)(e)       Recission Agreement between the Company and Diamante Fine
                       Jewellery Limited dated February 7, 1997+

          (a)(f)       Purchase and Sale Agreement between Diamonair, Inc. and
                       Litton Systems, Inc. dated November 21, 1997.

          (a)(g)       Asset Purchase Agreement between the Company and Aviv,
                       Inc. dated February 10, 1998.

          (a)(h)       Employment Agreement between the Company and Gadi Beer
                       dated February 10, 1998.

          + Documents previously filed with the Company's Registration Statement
            on Form SB-2